NO EASY SOLUTIONS TO HARD PROBLEMS

How do we get back to some kind of normal? This is the trillion dollar question everybody is debating.

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One of the first lessons in investing is that risk and returns are like two sides of the same coin. From childhood, our parents warn us to watch out for things that are too good to be true. When an investment deal seems too good, that often implies an unaccounted-for risk.

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When Alliance puts a deal together, we have to weigh natural disasters, interest rates, shifting supply and demand market dynamics, risk of tenant default, costs and coverage details on different types of insurance, and more.

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We’re optimizing for risk-adjusted returns, and it’s the overall risk profile that matters. All these factors need to be balanced for our investments to succeed.

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When it comes to reopening the country, the investor perspective can offer our leaders a valuable lens. Rather than focus on optimizing a single factor, like total deaths, serious illnesses, or jobs lost, we need to balance all these and more and create a robust risk profile for the country’s reopening.

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There are no free lunches, and any hard decision carries meaningful trade-offs.

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Protecting against one risk can just open the door to a different one. I don’t think anybody wants to clamp down so hard on virus transmission that we end up with a new great depression.

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There are no easy answers to hard questions about how and when to reopen different parts of the economy. Things will go best in places where decision-makers are thoughtful about different risks and interests. Saving lives matters. So does preventing a depression, protecting local economies, making sure kids aren’t stunted from lack of proper schooling and play outside the home, and more.

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I don’t envy the leaders who have to figure out how to deal with this unprecedented situation. They’ll need to strike a careful balance to protect all of America, and I’m certain that an investor’s perspective on balancing different risks to create the best return will help them make better decisions.

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