Conviction sells. That’s why Jim Cramer’s ‘Mad Money’ and Dave ‘Davey Day Trader’ Portnoy’s video streams are so popular. Whether right or wrong, they make bold calls with little, if any, equivocation. Watching a fund manager say “on the one hand this, but on the other hand this” for 30 minutes does not make for good TV. If investors have strong views, whether it be about the economy, a sector, or a stock, then they should have the courage to follow their beliefs. 
At the start of the year, the global economy appeared to be gathering steam. In the UK, a decisive general election result and agreements on the outline of a Brexit deal promised an end to the uncertainty of recent years. In a US election year, the incumbent president would have every incentive to ensure that the economy would continue to run hot and trade tensions with China would be placed firmly on the back-burner. Investors who strongly believed in this outlook, as we did, would have felt comfortable with a portfolio built to benefit from such an outturn. Then the pandemic struck.
The technology forecaster Paul Saffo coined the phrase, ‘strong opinions, weakly held’ to describe a framework for decision-making. This is a useful tool for investors. It’s fine to have high levels of conviction, but you must also be prepared to abandon them quickly if the evidence changes. While it’s rare for that shift to be something as dramatic as a global health crisis, the pandemic provides a good example of the benefits of reacting quickly.
Using the European airline sector as an example: improving macro-conditions; the cost-saving opportunities of new aircraft; and ongoing market consolidation all pointed towards the beginning of a prolonged earnings upgrade cycle. We certainly thought that was the case. Relatively early in the pandemic, however, it became clear that this thesis was going to be severely disrupted. Holding onto prior opinions in the face of the new paradigm would have been costly. On 9 March, Italy became the first European country to enter lockdown. An investor in EasyJet who sold on that day might have felt it galling to accept a price of £10 per share for something that was trading at over £15 only a few weeks earlier. Today it is trading at under £6.
Half a year on from when Europe began to shut down, we’re still operating in a world of heightened uncertainty. While we now know far more about Covid-19, much is still unclear. The progress being made towards a vaccine appears hugely promising and the announcement of any Phase III trail success would be greeted very positively by the markets. If the most advanced candidates fail, however, and it looks like governments will maintain restrictions through 2021, this would be met with the opposite response. The threat of a no-deal Brexit is creeping onto investors’ radar again and Donald Trump has made it clear that he’s going to have to be dragged kicking and screaming out of the Oval Office if he loses November’s election.
Having entered the year with the strongest conviction we’d had in a long time; we are now back in the position of having very little. While we still have high levels of confidence about the outlook for a number of companies; the bigger picture is frustratingly murky.
To paraphrase Jack Welch, the legendary chairman and chief executive of GE, we must ‘face reality as it is, not as it was or as we want it to be’.
Neil Veitch is manager of the SVM UK Opportunities fund. The views expressed above are his own and should not be taken as investment advice.