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Decision-Making During Uncertain Market Conditions (Randeesh Sandhu)

Jan. 01, 2021 5:32 AM ET
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Johnny Fr's Blog
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Seeking Alpha Analyst Since 2016

I am a value investor, focusing mostly on micro-companies selling for a steep discount to price/book, price/sales, price/earnings, EV/EBITDA and/or other traditional measures of value. (Price-to-book is my favorite, by far.) To control risk, I also prefer a low net debt/equity, ideally 30% or less.

This year has been like any other. Investment decisions have become even more complex due to the global impact of the coronavirus pandemic and influences that have been around for longer, like Brexit and emerging stakeholder capitalism. These challenges are far from over and have already presented notable learning opportunities for investors and business leaders.

To respond to these challenges, many investors are taking new approaches to the way in which they make their decisions. Investment models have suffered from frequently being built around simplified and false assumptions. Those models impose a linear outlook on systems which cannot be accurately viewed through that lens. It’s that same linear approach that limited organisations and countries in recognizing the true potential of a global pandemic.

One of the tools investors have looked to is complexity theory to explain the environment we are operating in. Complexity theory accounts for the realities of the dynamic world we live in and informs better decision-making with the information available.

If we, as a society, don’t learn from the global challenges of this year, we can fall victim to similar events which will continue to be labelled as black swans.

Using complexity theory helps investors understand that human behaviour is unpredictable. The incalculable interplay between individuals sets the course of the future, so having some appreciation for these interactions helps businesses embrace the non-linear nature of markets and organisation principles, helping to inform better decision-making.

With growing interconnectivity globally, there is an increased likelihood of global issues such as the coronavirus pandemic occurring. While we may not expect another imminent pandemic, the range of global issues that can greatly impact decision-making is vast.

There is, therefore, an urgent need for investors to refrain from taking simplistic views of events and systems around them and instead incorporate complexity thinking in their decision-making.

Randeesh Sandhu is a real estate finance specialist and private investor, with over two decades experience running companies in real estate principal lending and development. He successfully executed strategic joint ventures, credit lines, and loan syndications with numerous institutional investors and asset managers, including KKR, UBS, Starwood Capital, LaSalle Investment Management and Aviva Investors. He is a published author, regular industry commentator and event panellist, with a passion for Mathematics (Platonist!).

Make Up Your Mind: Enhance Your Decision-Making Skills - Executive Secretary

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