Hamish Douglass: 'We're lucky this pandemic hit when it did'
Magellan's co-founder on why 2020 resembles 2000 and why covid-19 is a dry run for something that could be much worse without proper planning.
Lex Hall: We're on the sidelines of the Morningstar Individual Investor Conference. And you mentioned in your presentation that kind of this year reminds you somewhat of 2000. Can you expand on that a little bit?
Hamish Douglass: Yeah, the comment I was making early on about 2000. Obviously, we've got a market that's been dominated by technology companies, 20 per cent of the S&P 500, which is the main US index, is comprised of five or six companies, that's higher concentration than we had back in 1999-2000. The difference, of course, these companies are earning a lot of money, and they're very proven business models. Way back in 1999-2000 many of the companies weren't earning anything. And many of them had very questionable business models that were unproven. But we do have companies that have been very highly valued in the technology space. So, I wouldn't say those proven business models, but in unproven business models, where the markets putting extraordinary valuations on companies that really may never work out. And that's how caution is, it is one thing about, Alphabet or Alibaba or Microsoft is doing really well, and therefore there's this younger company, let's get on board and its share price’s going up. You know, there is some warning signs out there for us that people are not discriminating very well, between the true winners and the wannabes.
Hall: It seems to me that, you know, the pace of change in technology has just been so rapid, I mean I remember when I got my first iPhone, and now it's ubiquitous, and the change that has occurred in that period, is staggering. The Magellan…
Douglass: Lex, I'd just say we're absolutely right. You know, we're on a webinar, we're on a Zoom link at the moment. [If] we went back five years ago, how would have this world coped from a business perspective? Even five years ago in terms of bandwidth and everything else to carry on our lives. So, you're right, the rate of change … we're very lucky, this pandemic hit when it did. Five years earlier, the damage to the world because of the loss of total productivity of service industries would have been extraordinarily large.
Hall: Hamish, you've just I mean, all that you're saying just sort of brings up so many questions. And what you've just said then makes me think of “COVID-20”. Will we approach it differently? Will we say, ‘hey, we're not going through that again? We'll do it differently this time’?
Douglass: Yeah, it's a very good question. Yeah, as bad as COVID is, we're very lucky that the mortality rate is actually pretty low. If we had an airborne virus that had a mortality rate like MERS had, it would have been truly frightening. And frankly, you couldn't have let anybody out of house, you know, we would have had a total lockdown until we had some way out of it, because the mortality rates of that are up at 50 per cent or 60 per cent instead of point something of 1 per cent. And you asked whether or not we will change, and we'll learn things. I hope so because at some point in human history, we will get a coronavirus that comes from an animal that is both very contagious, most likely by airborne transmission, and deadly. And you know, this is a dry run for something that could be much, much worse. I know it sounds very bad at the moment, but there could be something that literally could be a threat to humanity. And I hope we're going to learn the lessons out of this, and we will find ways of dealing with it much more quickly.
The one thing I'd say both central banks and governments responded actually fairly quickly, well the response hasn't been perfect around the world. I think Australia and New Zealand and Taiwan got a close to perfect responses in terms of managing the health care side of it. Many countries haven't and they've let politics get in the middle of it. If this was more deadly, and we had that going on, it worries me. I hope we will have better sort of PPE reserves and things in the world. I hope we will have very good game plans worked out. Certainly, the fiscal and monetary response came hard and came early and that was very, very worthwhile.