It's not every day you find a protagonist in the world of finance who is horrified because there are "political leaders who are more concerned with market trends than with people's health" and whom he considers "misleading and dangerous for the democratic balance" the agenda of the news puts Stock Exchange Day in second place on the daily schedule. But Paolo Basilico is not only a champion of finance but he is a man animated by a deep and rare civil passion. This is revealed by the very name of his latest creature, founded a few months after leaving Kairos, the jewel of managed savings and private banking that he founded twenty years ago: it is called Samhita, an exotic name which in Sanskrit means "to unite ”, “connect”, “put in order”. It is striking that a person who has dedicated all of his professional activity to the financial world does not conceive finance as an end in itself but as an activity at the service of the economy and the progress of humanity. Who better than him can then help us understand how to manage our savings in turbulent days like those caused by a bolt from the blue like the Coronavirus? The interview that Paolo Basilico, head of Samhita Investments, gave to FIRSTonline certainly does not disappoint expectations, rich as it is in answers that are never banal and decidedly out of the ordinary.
Doctor Basilico, in your latest book "Men and money" you wrote that "finance is not what is told and which celebrates itself through myths and fictions" and that it is therefore essential "to escape the logical and psychological traps in which we inevitably end up to fall when we have to make decisions that affect money": in the crisis caused by the Coronavirus, how should a prudent saver behave?
“A prudent saver must first of all verify his liquidity needs in the light of the terrible events we are experiencing. Anyone with a business or income threatened by the pandemic - and there are many of them - must review their investment choices to be sure they don't have to sell for at least the next 12 months. Having done this important exercise, the advice is the same as the medical one: distance, in this case financial and not social, and an absolute ban on trading operations in which the risk of further losses is very high".
Alessandro Fugnoli, unanimously considered one of the most brilliant strategists in the Italian financial community and whom you brought to Kairos, wrote a couple of weeks ago that "it is too late to exit the Stock Exchange and too early to re-enter": he agrees with this reading the current market situation?
“I agree with Alessandro that it is too early to return because unfortunately we have no visibility on the future not only of profits but of the companies themselves. As for dating, it all depends on the financial planning work I was talking about earlier. If we don't have enough hay on the farm, it's good to do it even now, however painful it may be. Otherwise it is right to remain still ”.
You argued in Il Sole 24 Ore last Tuesday that, faced with an exceptional situation such as the one caused by the epidemic that is devastating all of humanity, "the only correct measure would be to close all the world's stock exchanges": why?
“It's an extreme hypothesis that we need to make an argument. Finance and the stock exchanges have played an essential role in the history of human progress. They did so by supporting the growth of the real economy, technological innovation, and the distribution of capital and income. But when the real economy shuts down, what do the markets represent? What do they exchange? What representativeness can be assigned to the prices that we see fluctuate crazily every day? Can you bet on a horse race without the horses? Then there is the socio-political aspect. Leaders who are more concerned with market trends than with people's health risk not only leaving us a pile of financial rubble, but also revolutions in place of the songs that rejoice our hearts today. I find that the trend of the stock exchanges in the second place on the news agenda these days is not only misleading but dangerous for the democratic balance of our systems”.
According to her, the markets are more frightened by the uncertainty of the evolution of the Coronavirus or by its effects on the real economy which seems to be headed towards a real tsunami and a recession which at the end of the second quarter could cause a drop in Italy's GDP by 5%?
“I have never believed in the forecasts of financial oracles and the tragedy of these days only confirms my deeply rooted conviction. The so-called experts "see" the dollar at this level, the Stock Exchange at this level, the GDP at this level. It is impossible not to notice the contrast with some magnificent Italian doctors and virologists who have dedicated a lifetime to studies and who humbly declare that they do not know enough about the virus to make predictions. In listening to them, not only do I not get scared, but I feel profoundly reassured by being in the hands of capable and common-sense people. Even in the financial sector, savers should rely on this kind of professionals and forget about narcissi and seers”.
In the last twenty years we have seen three great crises up close: that of the attack on the Twin Towers in 2001, that of the bankruptcy of Lehman Brothers in 2008 and that of today's Coronavirus: beyond their different origins, the way to react from markets to crises is it always the same or is each crisis completely different from the previous ones and has little to teach?
“It's an interesting question. If you start from the assumption, which is the main thesis of my book, that markets are not abstract entities but are made up of people and their behaviour, then you deduce that crises, even if they are very different from each other, always evolve similarly. The initial denial phase is followed by an actionless doubt phase and then panic selling. We have just entered the latter and it will take some time for portfolios – and investors before them – to regain equilibrium”.
There are those who maintain, it is not known out of real conviction or out of self-consolation, that after hitting rock bottom the economy will restart in a V or a U: what do you think?
“I have already stated my absolute lack of faith in crystal balls. As we listen to the best doctors on the planet engage in a joint and global effort, I have no doubt that a cure will be found first and a vaccine will follow, and we will return to a new normal. But it is reasonable to expect that the desert ride will be long and to prepare for this eventuality. If we have made a mistake due to an excess of prudence and perhaps have missed a first phase of upside, it will be a good problem to have".
Last week an illustrious virologist from Sant'Orsola has told FIRSTonline that the Coronavirus is still largely unknown even if medicine is fighting with all its strength to tame it and one of the very few positive effects is that the No Vax have finally left the scene: similarly, for finance it can be said that one of the few positive effects of this crisis is the end of the illusion of continuous growth of the markets and the return to the field of the risk-return option?
“Yes, of course, the moral hazard favored by the complicit attitude of Central Banks in recent years has been swept away by the virus. But it will come back in the next cycle, because people are and always will be dominated by the head-belly alternation. What can and must change, however, is the level of financial literacy, especially in a country rich in savings like ours. Greater knowledge and mastery of the world of investments would be a positive consequence – certainly not the only one – of this tragedy”.
Excellent article, clear, objective and not alarmist.
Let's hope so.