The mood was one of apprehension but also opportunity at a private client event for high net worth customers of a major international private bank at a local hotel earlier today. Apprehension, because of the volatility in equities markets and uncertainty about a recession. Opportunity, because these clients are already thinking about where they can buy good quality assets cheaply.

The bank's chief economist and head of equity strategy were on hand to give their prognoses, which was for the US to slip into recession, followed by a rebound later this year. A similar forecast could have been delivered by any number of economists at any number of private banks.

The point is: the big individual investors are slightly anxious about where all this is headed, but they are not letting this cloud their perspective. They are quite happy to ride out the short to mid term volatility, and not because age is on their side. Because in many cases it isn't. They are willing to ride it out because they understand that panicking doesn't help. They know from experience that crises are never complete, there is always a silver lining.

In this context, the conversation turned to the oft-used truism that "no one wants to catch a falling knife". In other words, no one wants to buy stocks which are in freefall, lest they fall some more. The problem with this truism is that it isn't true. Most stocks, unlike knives, bounce. They don't just go down, they go up again, too. So, stocks are more like balls. Sure, you may not want to catch it as it is still falling. But if you buy quality companies, chances are they'll bounce right back, even if you make a short-term loss.

This theory could be applied to the Government of Singapore Investment Corporation (GIC), which bought large stakes in, for example, UBS, for huge sums of money. Was it worried about a falling knife? It could possibly have picked up this stake for less money. But it already saw value, and decided that a short term loss would be worth the long term gain that it stands to make.

That said, GIC possibly had other national interests at heart. I haven't asked GIC about this, but some of the members of the private bank luncheon were fairly convinced that GIC bought the stake not just for the potential financial return on its investment, but also its ability to call the shots at UBS. It has not sought a seat on the board. But it doesn’t need it. Perhaps all it wanted was to secure UBS' commitment to keep Singapore as its regional HQ. You don't need a directorship to get that. If this theory is correct, Singapore will reap a return infinitely higher than the inevitable improvement in UBS' shareprice.


Mark Laudi, who emceed the private client briefing

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Labels: falling knife, GIC, Government of Singapore Investment Corporation, market declines