When no one knows what do trustees do?
We really like the latest memo from Howard Marks at Oaktree Capital called ‘Nobody knows (yet again)’. For us it’s the most useful piece we’ve read since 'Orange Monday' when the US tariffs caused a market hiatus. It points out that nobody knows the future.
If you are a charity trustee you may well feel a need to do something, but as we pointed out in our last blog ‘What Liberation Day means for charities’, if no one knows what’s going to happen, it’s difficult to switch to the right rather then the wrong strategy. While it’s good advice to sit still on the investing front, what concerns most trustees is their spending, and what impact the market disturbances might have on annual budgets. Obviously no one knows, but you can do some preparatory work. We suggest trustees consider these things:
Why do you have investments? Are they to provide long term income and growth or ballast for organisational stability? If it’s the former sit tight; if it’s the latter make sure you can afford to lose more in case you do.
When calculating your investment declines, don’t assume that the highest value you ever had is the value to which you are entitled. That is as random as choosing the lowest value you’ve ever had. Instead understand your current value in terms of your financial objectives. Over the last few years have you intended to grow, stay the same size or shrink. Are you ahead or behind this target? And over what time frame. There’s usually plenty of time to get back to the big number - so long as you are patient.
Think about ranges and triggers. Markets are volatile (really?) so what is an acceptable range of values for your portfolio? Is there a floor which when crossed will cause knock on problems? Don’t cross it and plan in advance so you don’t panic.
Reserves: don’t confuse liquidity with your reserves. Liquidity, as in six months running costs, is part of your investment strategy (and so forward looking), whereas your reserves relate to accountability (so are backward looking). Organisations fail because they run out of cash before they run out of assets. Make sure you have enough. Remember that market excitements come and go. All that should matter to trustees is the impact on the charity’s spending.