We all like to know that, if there’s ever a problem, the people handling a crisis are experienced. Pilots, doctors, kindergarten teachers all have something in common: the best ones have done a lot of tough stuff and have the scars to prove it.
Yet the world of finance is a bit different.
According to a recent survey of fund managers in New York, Paris. and London, it appears that less than half of fund managers have been through even one market crash. (Note, the last one was less than 10 years ago.) Using the definition (pdf) of a transition from a bull to a bear market being a decline of 20% in the stock market, the majority of people that manage money professionally have never experienced a real downturn, much less the volatility that goes with it.
Corrections (widely defined as a decline of 10%) are more common but the relative calm experienced in markets since the Great Recession of 2008 means that experience in even a moderate downturn is highly concentrated in managers who began their careers at least 15 years ago.
Interestingly, during February, everyone had the opportunity to gain experience in the most rare event; a 10% decline over 10 days, something that has only happened 19 times since World War II.
Those who value experience are the most likely to have it themselves. In an interview with Bloomberg, Paul McNamara, who heads a team of five at GAM in London managing $11.5 billion, says he avoids hiring anyone who hasn’t endured an “absolute disaster.” These younger managers are mirrored by a broader world of millennial investors who have only known good times. Jessie Felder, publisher of the Felder Report (paywall), notes: “Most (investors) have only the experience of the greatest bull market of all time to fall back on. They have not experienced even a normal market that corrects regularly let alone a real bear market.”
For more than 75% of fund managers, the dotcom crash is stuff of lore and Black Monday is ancient history.