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Investment and the new world order in a COVID-19 era

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“Time is relative; its only worth depends upon what we do as it is passing.” -- Albert Einstein.

The world has changed since the pandemic. Have we gone so far as to approaching New World Order? Dr. Rania Azmi explores an investment landscape - changed forever.

I have always admired the idea of time and its relativity according to Einstein. We are at a time where our world has been shaken by COVID-19, which is as a being in a gray area between living and nonliving, capable of transforming itself from biochemistry to molecular biology, threatening the mankind.

So, what can be the consequences and the new world order in the aftermath of COVID-19 or as its widely known as Coronavirus.

The answer can be condensed in three terminologies: Ecosystem, Systemic Risks and Humanity. Between the three of them falls any scenario in a world after coronavirus.

Altering the ecosystem

Zooming into investment world to try to simplify our outlook and reading of the current situation, historical financial events attests that investors tend to be very good in anticipating simple or calculated risks, whereas they conveniently ignore such risks as black swan, black elephant and grey rhino risks.

The black elephant is a significant threat, risk or issue that is obvious to everyone (or the experts who give warnings), but no one wants to address or deal with it (combining the elephant in the room analogy with black swan type of risk). When it becomes a full-blown problem with a high impact, people are surprised and act as if it were an unpredictable black swan event (which is a low probability but high impact event as most swans are white).

"Most AI algorithms [will] need a reprogramming to have social distancing instead of decades of having the norm as social networking, the least to say."

While Grey rhino is a variation of the black elephant, large enough to do serious damage. Elephants are big and will cause problems one way or the other. I remember in a couple of world’s summits two years ago, I emphasized the ultimate meaning of these challenging forms of risk and the importance of being alerted to any highly probable, high impact yet neglected threat, which when it charges, can cause severe damage. Listing back then examples of such risks as climate change, terrorism, health epidemic, social dynamics; not merely a prediction of another financial crisis.

Today COVID-19 is a manifestation of one of these neglected risks, and falls between black elephant and gray rhino types of catastrophic risks. What I didn’t expect is for that to be a pandemic (all people), although many stratgists and scientists warned too about various forms of antimicrobial resistance.

Such risks and the new reality of a world with COVID-19 pandemic represent a harsh reminder of how interconnected and complex our world is becoming and that we share one and only ecosystem that we need to significantly improve together.

Systemic risks

We have seen real time how policy makers and decision makers around the world have been reacting and interacting with the increasingly challenging developments of this virus crisis. And yet we are not any near from the beginning of ending this crisis.

One of the reasons is that we still chose to work in silos, while we can save time and lives synergizing our knowledge and findings. There are at least 10s of promising treatments/experiments to end COVID-19 as we speak now, but unfortunately there is a lack of coordination or resources or both to expedite their outcome.

Reading the current parameters of the world's economy is not very promising but that's not enough to direct any decision an investor might want to make now to try to preserve their investments or wealth while being responsible investor in sharing a sustainable ecosystem.

I'd like to emphasize first the fact that no one wakes up thinking they are going to make bad decisions today. Yet we all make them. What's surprising is some of the biggest mistakes are made by people who are very bright. Smart people make poor decisions because they have the same mental factory settings as the rest of us. Those settings are not designed to cope with many of today's problems.

Our minds frequently want to see the world one way - the default - while a better way to see the world takes some mental effort because its more complex and multiple instead of being a one way.

Many factors determine the outcomes of our decisions, and equally any decision making involves multiple factors. Most challenging decisions include an element of uncertainty, while we tend to make decisions even when information is incomplete.

More information does not necessarily mean complete information. For example, Media companies have done great jobs convincing investors that they must stay constantly tied to their communication devices for fear of missing the latest news that may impact their investments.

However inconsequential, insignificant, irrelevant, and short term the issues are that they are communicating. COVID-19 news is not an exception of that story, by the way, for that the quality of information needed to make any decision is not measured by the amount of available information, it can provide more noise than direction sometimes. We have to recognize that systemic risk will always be present in data everywhere society.

Additionally, global headlines and events over the past decade have created a heightened feeling of uncertainty with respect to perceived global risk.

Uncertainty can be reduced but never eliminated. If that were possible, we would be able to predict the future without errors.

In reality there is no permanent security in this world.  Choosing not to take risk does not secure one from change that can take place in our world in various aspects.

We are increasingly operating in a highly complex and confusing times. Today's investment environment seems a world apart from that of just one generation ago.

The 21st century already witnessed many odds. For instance, half way through the financial crisis other problems surfaced such as slower economies, negative interest rates, increasing unemployment rates among youth and geopolitical tensions that resulted in falling States in the 21st century. It is not surprising how the current virus crisis resulted in even more odds to be added to the surprises of the 21st century. Most AI algorithms would need a reprogramming to have social distancing instead of decades of having the norm as social networking, the least to say.

The too big to fail challenge in the aftermath of the financial crisis which we kept under observation by utlizing stress testing (computer-simulated technique to analyze how banks and investment portfolios fare in drastic economic scenarios, to help gauge investment risk and the adequacy of assets). This is now replaced in COVID-19 Era with too small to survive staying at home or too bureaucratic to adapt and go online, etc. The rise of media and online businesses cannot be compared to health care industry at the moment and on the other extreme is the downside comparison with an industry like the aviation and airline business.

The Key is that the world have became irreversibly interconnected and very complex and highly dependable on each other and that what makes it more prone to systemic risks. We conveniently forget that we are all part of the same ecosystem, not only all the nations but all humans no matter who or where they are located, all creatures, animals, plants, galaxies and stars included.

We have to focus on how to remain engaged with the past while liberating ourselves from the worst kind of confirmation bias, which assumes that since the future is unknowable, it will be based on what we now know.

We are in a serious need to optimize our decisions in a multiple way not a one way default. The worst thing an investor can do in such an atmosphere is a tendency to over simply factors influencing investments' risk adjusted returns or overall wealth. For such factors will always be complex and multiple where our processing mechanism should be adjusted accordingly.

It might be just about relevant to give an analogy with how ICU doctors operate compared to other doctors in various specializations - I guess it's sexy to give that medical example amid a virus crisis, although I think it's basically essential - for that analogy should lead what am trying to say to investors and key decision makers.

Approaching a new humanity?

We have the luxury in economics to say "all other things being equal." It means that most of the time, something will occur as a result of something else. That is, of course, if nothing else changes. Well guess what everything is continuously changing. Change is the only constant.

So in the ICU story, doctors are constantly trying to be problem solvers for critically ill patients, where there are highly multiple factors involved in any given health challenge. It's more like trying to catch a moving target.

The interconnection and complexity of human body is perhaps 100s more of that of complexity in our material world of economies and policies. One quick example without getting too deep into medical field, lung and kidney functions are intimately related in both health and disease.

"Such risks and the new reality of a world with COVID-19 pandemic represent a harsh reminder of how interconnected and complex our world is becoming and that we share one and only ecosystem that we need to significantly improve together."

The regulation of acid–base equilibrium, modification of partial pressure of carbon dioxide and bicarbonate concentration, and the control of blood pressure and fluid homeostasis all closely depend on renal and pulmonary activities. Therefore, for critically ill patients in the ICU, trying to correct the near failure of one organ such as the lung or kidney cannot be done and will not be successful in isolation of one another.

Yet there are limitations of what ICU doctors can measure and treat. The more they try to optimize multiple various factors, the more lives will be saved. Similar analogy for success in the aftermath of COVID-19 Era applies.

Do you envision the future world in a different way? Let us know - we'd love to hear your perspective.

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