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Résonance podcast – A century of economic and financial history – Episode 6/6

Listen to our podcast on the economic and financial events of the past 100 years in which Belgian business columnist Salma Haouach interviews Chief Economist Guy Wagner.

Welcome to Résonance, the Banque de Luxembourg podcast (in French) that takes a look at the major events of the past 100 years and shares our insights into how they have impacted modern society. How can these past milestones prepare us for the financial challenges of the future?

This is part of a series of six podcasts presenting a positive analysis of the major changes born of past crises.


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When there’s strong pressure to invest in a fashionable theme, you have to know when to hold back. Guy Wagner, Chief Economist

Podcast summary

SH: Guy Wagner, Banque de Luxembourg is celebrating its 100th birthday. That’s 100 years of economic and financial history, with crises, prosperous times and not-so-prosperous times. How do you feel about everything that’s happened?

GW: It’s hard to say... Personally, I haven't spent 100 years at the Bank! I started here in 1986. The events that affect us most tend to be those we’ve experienced first-hand. When we look back at financial history, there are events that we may not have experienced ourselves but have perhaps left a greater mark on history than those we have lived through.

SH: Guy Wagner, when you started at the Bank, was there a particular mindset? What was the economic and financial footprint back then?

GW: I started in ‘86, and the stock market crash happened in ‘87. It was the first major stock market crash since 1929 and for most people working at the time, something they had never experienced before. And for me, as a young man starting out, it left a deep impression.

Then there were other events. In the 1990s, there was what was called at the time the ‘Asian Contagion’, a crisis affecting the emerging markets. Later, there was the bursting of the dot-com bubble followed by the financial crisis in 2008. And now this year, there’s the COVID-19 public health crisis.

SH: As a young economist in the financial sector, what was the '87 crisis like for you?

GW: I think people react to these things in their own way. Here at the Bank, it was very important to have a philosophy, a methodology in which we truly believed. We kept telling ourselves that sooner or later we’d get back on our feet. In a way, that was reassuring, although obviously at the time we were concerned.

SH: Crises inevitably leave a mark. What have been the lasting effects of the crises you've been through?

GW: It’s often said that in every crisis there’s an opportunity, and indeed, for an asset manager, to some extent that’s true. If you’re looking to buy high-quality companies or assets at low or even rock-bottom prices, you need to wait for an abnormal situation, some kind of crisis that’s causing a lot of other investors to panic. That’s the only time you can buy those companies. For us, a crisis can always be turned into an opportunity somewhere along the line.

Another lasting effect, from an economic standpoint, is the reaction of most central banks to crises over the past 40 years: they lower interest rates. The problem with that is that the situation is never truly remedied, it just creates the basis of the next crisis. I would also point out that over the past 30 or 40 years, the economic environment has become increasingly vulnerable.

SH: How can a crisis be turned into an opportunity? What do you need to make that happen?

GW: When there are crises like the one in 2008, you have to keep a cool head, even it means facing the hard truth. There comes a point , though, when obviously it’s very worrying. But you have to try to keep a cool head and have a long-term investment horizon. You’re not necessarily going to be fixated on what will happen in the next three months. What matters is the long term. It's important to have a methodology in which you believe, whose effectiveness has been demonstrated and will continue to be demonstrated. One of the biggest investors, Warren Buffet, would always say, “You have to buy when others are afraid”. So when everyone else is very confident, you should probably be wary. Of course, people are afraid during a crisis. Often they offload their assets out of fear, or sometimes because they need the cash. That’s when this sense of crisis creates opportunities.

“You have to buy when others are afraid” Warren Buffet

SH: From what you are saying, it seems there is always an interesting relationship between the rational and the irrational. And yet we get the impression that although the financial sector is highly structured, that structure could potentially come apart. How do you deal with that?

GW: Again, to some extent it comes down to common sense. In the finance sector, there are many theories or products out there that are less and less transparent. When there’s strong pressure to invest in a fashionable theme, it's up to the asset manager to know when to hold back and say “no”, because even if the theme is valid, the prices may be far too high.

A few years ago, we published an asset management brochure entitled ‘Simple Principles for a Complex World’. Unfortunately the notion of common sense can get lost these days, but it’s very important, especially for an asset manager. There are a lot of fashionable products around – some of them good – but you have to approach them critically.

SH: To that point, you talk about passing fads. There’s an expression you hear a lot at the moment which is ‘sustainable, responsible investing’. Is that a passing fad or is it a genuine underlying trend?

GW: I think it's more than a passing fad: it's a long-term trend. We’re noticing that younger generations are more focused on the notion of sustainable, responsible investing than older generations. It’s an area where everyone has their own idea of what constitutes responsible investing. Some investors choose to exclude certain business sectors, while others don't want to exclude anything. There are different niches within this overall trend, but I believe it’s here to stay.

SH: Has sustainable, responsible investing led to any major changes within the Bank, or was it already part of your philosophy?

GW: A bit of both. It changed things inasmuch as we signed the United Nations Principles for Responsible Investment in 2017, since we offer asset management services. But our methodology already took into account ESG criteria, and we don't invest in certain sectors, such as energy or raw materials.

SH: Thank you, Guy Wagner, for sharing your thoughts and experience. It was a pleasure! This was the final episode in this series dedicated to economic and financial events over the past 100 years.

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