Thomas S. Caldwell, Chairman of Caldwell Investment Management Ltd., was interviewed for WP Canada article Why investors need flexibility and liquidity in abruptly changing world.
By James Burton
August 25, 2020
Industry veteran says dramatic shifts now the norm amid absent political leadership and concentrated corporate power.
Flexibility and liquidity are critical for investors as we move into a world of absent political leadership and highly concentrated corporate power, according to an industry veteran.
Tom Caldwell, chairman and founder of Caldwell Investment Management, believes that if recent history has shown us anything, it’s that dramatic shifts in geo-political, societal, economic and corporate realms are now a given and can take place quickly.
He said: “No one would have predicted a worldwide economic shutdown even six or seven months ago. The fiscal imprudence of governments over the years - no savings for a ‘rainy day’ - has exploded in a scramble to spend and print money at levels inconceivable just a few short months ago.”
Compounding this is divisive leadership, for which the U.S. is earning an unwanted reputation. Caldwell offered a stark reminder that leaders must be both respected and trusted but warned that these days are long gone and that America’s evaporating global leadership is now a sobering reference point.
He said: “I would suggest that many in the U.S. are not participating in the 'American Dream' and the country has a major under-class whose needs and concerns should be realistically addressed.
“The tragedy in America is the dichotomy between political factions, the scarcity of effective leaders and the resulting inaction. Both sides of America’s political divide have simply retreated into hubris, rhetoric and demonizing their opponents.
“The U.S. media have failed in the primary task through being willing accomplices in the reality soap opera. America is not alone in divided or poor leadership.”
Caldwell added that trends towards isolation, judgmental attitudes and accelerated government control and regulation have been exacerbated and accelerated by COVID-19, even suggesting we might be entering the post-development era for the western world.
What does all this mean to the corporate world? Governments and regulators have responded to societal pressures by making ever more rules in a desire to level the playing field. Caldwell said the term ‘stakeholders’ has now replaced shareholders or owners in terms of accountability.
“Let me say, no one would dispute the need for broader societal responsibilities on behalf of corporations but innovation, efficiency, proficiency, risk taking and, yes, profitability are still required for economic growth,” he said.
“The resulting and ever-increasing volume of regulations can seriously undermine their specific good intent and our overall societal goals. Changes in the corporate world have also been disruptive. Many major corporations that were ‘one-decision’ investments either no longer exist or remain in a highly diminished state.
“They have been replaced by companies that only a few decades ago operated out of garages. Massive individual wealth and power has, as a result, been concentrated in the relatively few hands of these new innovators and entrepreneurs. This is now and will become an even greater cause for discord in the future.”
So what does this mean to investors? The “flexibility” Caldwell refers to includes both thinking and actions. He warnsed it’s imperative to avoid “group think” and focusing on one source of information and their “destructive” replacement of “analysis by experts”. They are actually only “thinkers”, he added, urging investors to question your own thoughts and your own potential “mind locks”. Flexibility is also critical when it comes to investment execution.
“Flexibility is synonymous with liquidity,” Caldwell explained. “COVID-19 has reminded us of our grandparents’ wisdom of always having a cushion of liquidity for either adversity or opportunity.
“For businesses, large or small, access to liquidity is now the single most important determinant for success. For the small business owners, who survive this period, building a liquid capital base outside of their enterprise will be a necessity.
“No one predicted COVID-19 in 2019 or early 2020, but similar events will occur in the future. Governments, claiming they know what is best for all, will often exacerbate the damage done in those instances. Their efforts at solving issues or easing societal pain can, in themselves, create new and potentially more damaging outcomes.
“The changes occurring in our world are becoming more frequent, extreme and abrupt. Flexibility and liquidity will allow greater freedom of thought versus the damage control required when events are upon us.”