Crisis Management

Crises are not a deviation from the norm, but an integrated part of market dynamics. Historically, financial crises have arisen with regularity, driven by a combination of macroeconomic shifts, geopolitical tensions and psychological factors. For a portfolio manager, it is not about avoiding these storms, but about understanding their origin, course and the specific risks they expose different asset classes and sectors to.

Ignoring this dimension is to actively choose to be vulnerable when the market tests the portfolio's resilience.

Having a well-thought-out crisis strategy is a direct link to securing and maximizing long-term return. During periods of extreme volatility and panic selling, the market tends to punish stocks disproportionately, regardless of their underlying fundamental value. A prepared portfolio can use these occasions to acquire high-quality assets at discounted prices, while a disorganized portfolio risks being forced to sell at bottom levels and thereby permanently damaging its future return potential.

Crisis management is thus not a defensive measure, but a proactive opportunity to differentiate the portfolio's performance.

First and foremost, a robust risk framework must be in place long before the crisis breaks out. This means defining clear risk limits for individual holdings, sectors and the entire portfolio, based on scenario planning and stress testing. A portfolio that is diversified not only by sector and geography, but also based on the source of return (e.g.

value growth vs. dividend), is better equipped to withstand a shock. This diversification must be continuously reviewed and adjusted as market conditions and the portfolio's composition change.

When a crisis is a fact, the key is to act quickly and methodically. The first step is to differentiate between a temporary market reaction and a fundamental change in a company or industry. If the portfolio manager has to sell a position, a predetermined, disciplined process must be followed to avoid selling in panic.

This can involve using pre-placed stop-loss orders or gradually scaling down the position. At the same time, a liquidity buffer must exist in order to act on the opportunities created when others sell, without forcing the sale of other holdings.