June 6, 2025 l Manila Times
Approaching the midyear, I feel it’s been a roller-coaster ride for many countries, especially in light of US president Donald Trump’s actions. The question is whether we can catch opportunities amid all the turmoil. I believe we can.
As I keep track of the news, the headlines are dominated by the wars in Ukraine, the Gaza Strip, and between India and Pakistan, There are also rising tensions in our own backyard, with provocations from China.
On the economic front, there are the trade wars unleashed by Trump on both US allies and adversaries.
These geopolitical shifts and unpredictable events have increased the risk in financial markets. The Philippine Stock Exchange index has see-sawed starting at 6528 at the beginning of the year, falling by as much as 4 percent before springing back to its current level of 6412. Regional markets were also not spared from this volatility.
Curiously, the US market, which had its share of wild swings, has remained relatively stable. We do not know for how long, though.
New approach
We have to consider a new approach to the multifaceted challenges unfolding. Navigating today’s volatile and uncertain market demands a proactive, adaptable and comprehensive approach to risk management that goes beyond mitigation, encompassing resilience and strategic foresight.
I am reminded of the concept of anti-fragility introduced by Nassim Taleb. This involves systems that not only withstand, but actually benefit, from stress, uncertainty and volatility. This entails embracing risks that could potentially lead to growth and improvement, rather than solely focusing on mitigating threats.
Most businesses are, after all, about risk taking. A cornerstone of addressing risks is diversification. It is a time and tested approach, even in benign conditions, but more so in the current situation. Diversification extends beyond merely spreading investments across different asset classes.
In a recent Finex Foundation meeting, it was pointed out that we should start considering blue chip preferred stocks or Real Estate Investment Trust (REIT) positions to augment conservative portfolios of bonds and treasuries. Diversification involves investing across industries, geographical locations and other types of revenue streams.
For businesses, this might mean exploring new markets or product lines to reduce dependence on a single or dominant income source.
For banks, this could mean diversification from auto or corporate loans to real estate or consumer loans.
For investors, it entails considering uncorrelated assets and alternative investments that behave differently during market corrections, thereby cushioning the impact of adverse events.
Recently, gold has regained its allure as an alternative investment. The goal is to minimize concentration risk to ensure that a setback in one area does not cripple the entire operation. This is a pillar of the anti-fragility concept.
We need to adapt measures to avoid fatal system defects or even errors that we, as humans, are prone to in times of distress, which could lead to institutional collapse. Company risk management systems promote adaptive leadership and continuous risk monitoring. The speed at which market conditions change has accelerated.
This requires real-time insights to adjust risk measures. This needs robust risk-monitoring systems that track market trends, identify emerging threats and provide early warnings or shifts in market sentiments.
We have also learned to use machine learning (ML) tools to identify complex patterns in large data sets and improve the reliability of scenario plans.
This is specially useful for identifying and preventing fraud incidents. Maintaining a long-term perspective is paramount amidst short-term market fluctuations. Warren Buffett recently said, “Your time horizon is your greatest asset … commit for the long haul and the market will reward you.”
I have to admit, though, that fear of short-term losses could lead to impulsive decisions. A disciplined, long-term strategy often proves more effective in volatile markets. Volatility tends to even out over time, and a focus on fundamental value rather than market noise allows investors to ride out the volatility.
This also means focusing on sustainable growth, strengthening core operations, and investing in innovation that would yield returns over the long term.
***The views expressed herein are his own and do not necessarily reflect the opinion of his office as well as FINEX. For comments, email rsgoseco@gmail.com. Photo is from Pinterest.