A little over a fortnight ago history was repeated when NASA’s Jet Propulsion Laboratory (JPL) successfully landed a rover on the Martian surface. After a near seven-month journey across 300 million miles of space, at a gentle cruising speed of nearly 25,000mph, the rover touched down on 18th February. Perseverance – or Percy for short – was lowered on to the surface by a sky crane, like its cousin Curiosity in 2012, in a feat of incredible human engineering. Of the now five successful JPL rover landings (yes, five!), this was the most accurate ever and was enabled through the experience gleaned over previous rover missions. [If you want to see the landing in real time from the onboard cameras see the link in the footnote. It is remarkable to watch and with probably better resolution than my phone].
Believe it or not, there are similarities in what we do here at Momentum to what the rocket scientists do in Pasadena. We talk at length with clients about our outcome-based investment philosophy and how we build portfolios that are designed to make the journey as palatable as possible, enabling clients to stay the course. We hope not to subject them to the heavy G-force associated with space travel and do our best to smooth the client experience. We recognise that investing, like space travel, is not without hazards and occasionally, despite best efforts to navigate a comfortable journey, a shower of space junk (let’s call it Covid-19) can throw you temporarily off course. We build safeguards into portfolios to help mitigate any loss of control with gold, treasuries, cash and alternatives all going some way to help smooth the rough edges. However, sometimes they might fail to fire – individually or together - and a combination (of diversifiers) is likely to do a better job of stabilising the module ahead of the next part of the journey.
Beyond the comfort factor, time is an important consideration. You don’t want to be getting off at the mid-way point to Mars in the same way you may not want to exit a four-year strategy following a sell off two years in. The perils of jumping ship at that point may be less hazardous to an investor’s health than for Nasa’s passengers, but both are likely to feel disappointment, and neither will catch up with their fellow passengers who stayed on board.
Eventually the destination will be within sight (of a telescope perhaps). I’ve used the analogy several times recently that we as investment managers want to bring our clients as close to the proverbial ‘X marks the spot’ as we can. If we do that, whilst minimising the downside risk, we will have done our jobs well. But it doesn’t happen by accident and like the teams at the JPL there is a lot of modelling and fine tuning to help align our strategies to that landing zone as their journey progresses. Percy’s parachute certainly helped in ensuring the accuracy of the landing and whilst there are no power lines on the Martian surface in which to get entangled (and please keep it that way, Mr Musk), the risk of overshooting the planet altogether or crashing into the surface in a fiery descent are very real possibilities.
Turning the space exploration and investment analogy on its head for a moment, the tail risk for the former is success; so many things can go wrong, and you don’t have the luxury of time to put them right. With an outcomes-based investment approach, the tail risk is failing to hit the target landing zone; time is the one constant you do have on your side and so many things can go right if you just let it. The recent success of the value investing style is a good example of how important it is to persevere with a strategy in which others have long lost faith, and let’s not forget the rover named ‘Value’ has had several successful landings before. Success is never guaranteed, but perseverance brings with it the opportunity to learn from prior experience, make marginal improvements to previously less successful attempts, and build faith in a process. Crucial to the success that comes with perseverance is time. Without it, Percy isn’t worth his bacon.