Lesson of the Year #9-Leadership Can Change...Often

by Jay Pestrichelli on December 20th, 2011

Some of the biggest global events we saw this year were the leadership changes in many high profile countries. Between the 15 or so nations that are currently involved in the Arab Spring or the changing of Italian and Greek leadership, investors have had to decipher what it has meant for their portfolios.
Here’s a great interactive timeline on guardian.co.uk that outlines the events of the Arab Spring. Starting with the vegetable vendor in Tunisia who sets himself on fire December 10th, 2010 through the storming of the British embassy in Tehran on November 29th 2011.
On almost all occasions, the uncertainty of the situation caused the markets to take cover and speculate in either direction. This in turn drove up the markets’ volatility and the tactics of the hedger became more interesting than usual.

It’s hard to say that these government changes are done. There are still highly charged protest and civil unrest in countries like Syria, Iran, Yemen and Algeria. One can also argue that the ongoing financial reform necessary to salvage Europe will require more changes at the helm.

The unpredictable nature of this global news usually catches fire in the headlines and Wall Street reacts…quickly. Our advice to manage through these events? It’s the same advice we’ve said all along. Rule #1: Hedge Every Investment.

If it suites the court, I’ll add the recent death of Kim Jong Il to the list. I know it wasn’t a revolt lead change, but nonetheless, it is a change in leadership in one of the most volatile countries of the world. Realistically there is little economic impact of this change in power, but of course the unknown is the unknown and the market punishes uncertainty.

If there is one thing we can take away from these global events, its that we won’t always see the uncertainty coming. Its better to have hedged and protected than to have never have hedged at all. (Sorry for the cheesy ending, but I couldn’t resist)


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