A Conversation with Riggs Founder, Robert J. Graham
Coolness under pressure is what makes a combat veteran so very good at managing money through challenging market cycles. It is a philosophy that Riggs’ founder, Bob Graham, has embedded in the investment team. We sat down with Bob recently and asked him a few questions about the current market correction and where he sees opportunities in the future. We thought you might enjoy his perspective.
You have been investing since 1956 and doing it professionally for 40 years. Given that you have seen the investment markets go through many cycles and economic challenges, what advice would you give to today’s investors?
Before I talk about managing money in challenging markets, it may be helpful to understand my experience before starting Riggs. As many know, I was a fighter pilot in the U.S. Air Force for nearly 30 years. I had four combat tours in Vietnam during my career—starting in 1962 as a civilian advisor to the Vietnamese Army and Air Force to my last tour in the early 1970s when I was squadron commander of the 4th Fighter Squadron in Thailand. To be a successful warrior, you must remove fear from your psyche. Fear paralyzes, makes you slow to react, and clouds your judgment. Eliminating fear allows you to assess the situation, make calculated decisions, and act quickly. That greatly improves your survivability.
That level of mental toughness is helpful in managing money through challenging markets. While others may let their emotions and fear of losing money drive them toward bad decision-making, at Riggs, we’ve trained the team to block out the noise and the headlines and focus on the opportunity the chaos in the markets creates. So, my first piece of advice to today’s investors would be to build mental callouses to market cycles. Markets will pull back, and you will find yourself on the wrong side of an investment at times. That’s the business. But if you remove the emotion, stay flexible and constantly assess where the risk is coming from, you should get 80% of the calls right, and that’s a pretty good track record in this industry. When everyone else thinks the world is coming to an end, that is the point of greatest opportunity, and the cool-headed investor will take full advantage of those opportunities.
The markets have pulled back significantly this year, and there have been few “safe havens,” are you starting to see investment opportunities?
Investing is recognizing opportunities wherever they are. That being said, there have been only a handful of areas where one could make money so far this year—primarily the commodity space. Most of the market and most sectors are in a downtrend, and sectors like technology have been absolutely shellacked. Layer on top of that, the highest inflation in 40 years, the largest monetary tightening effort ever undertaken by the United States, and an exogenous event with the Russian invasion of Ukraine. That makes for a pretty challenging environment for investors. While indices have been down as much as 20-30%, many of the underlying stocks that make up those indices have been down far more than that. Stalwart technology companies like Amazon, Facebook, and Apple have been down as much as -35%, -42%, and -22%, respectively, this year.
So in the short term, our job is to do our best to preserve capital and keep a lot of cash on the sidelines to take advantage of opportunities as they pop up. If we do this right, we will recover our losses quickly and get back to making money for our clients.
Since I founded the company more than 30 years ago, we’ve seen several periods of 20%+ pullbacks in the markets, and each period provided some of the best buying opportunities on the other side of the pullback. It’s important to remember that investing is a process, not an event. Our goal is to stack the probabilities of success in our favor. We do that by using the best independent research, digging deep into each investment, and working incredibly hard.
We are starting to see some pricing opportunities in technology and other sectors that have experienced large sell-offs. Whenever you have a correction like we’ve had this year, entire sectors get painted with the same brush. So, while there were undoubtedly a number of companies in technology that were overvalued and due for a correction, there are also some terrific companies delivering profits and value that were also sold off during the correction. Those are the types of companies and areas we will be adding to portfolios.
On a longer-term basis, the world’s economies have shifted from focusing on globalization to focusing on de-globalization. Countries will be less reliant on a global supply chain and look to re-shore critical industries. They will diversify their trading partners to not rely on a single partner. That is a significant change and there will be both opportunities and challenges that result from that transition.
As countries begin to stovepipe their economies, less integration globally will mean that investing internationally will require greater understanding of that specific country and that specific economy. We think international investing could provide some excellent opportunities. Our internal international experience will be a competitive advantage. In our firm, we have deep experience in living and doing business internationally. That is important as there are cultural nuances in how different countries operate and whether you would or would not want to invest capital there.
The shift to de-globalization will require investors to think differently and more creatively. We will need to be asymmetric in our thinking and not linear. Questions that we are asking internally include:
- Will Japan re-emerge as a dominant force in Asia?
- Will China embrace capitalism to an even greater degree?
- Will economic growth in Eastern Europe accelerate while Western Europe stagnates?
We are in the early stages of this change, but I think it will be a central theme for the next 10 years+.
While we are on the international discussion, you spent nearly 30 years of your career in the thick of geopolitical events—how do you see the Russia/Ukraine war resolving and what ramifications will it have on the world and the global economy?
I think we are at an interesting point in the war. The Russian military has been exposed and has failed. Putin has been embarrassed. Russia has lost much prestige and it will take a long time to rebuild their military. I think Putin is getting to a level of desperation that is dangerous and he needs an escape route that allows him to save face. Ukraine has now established itself as a force in Eastern Europe. It is likely they go to the negotiating table and try to decide how Putin can save face and how Ukraine can save land. Going forward, I doubt if Russian ambitions will be trusted by the United States, NATO, Japan, and others. On a bright note, the invasion has re-energized NATO and strengthened the European coalition.
The Russian/Ukraine war has had an interesting impact on Chinese ambitions. As countries mature, they feel compelled to demonstrate their military power. China has been doing that in the South China Sea and in its stance toward Taiwan. While the Chinese may have a better military than Russia, Russia’s failures in Ukraine may have caused them to pause and reconsider. Further, I would expect that China thinks Russia may have just slipped in perceived strength in the world from Number 3 to say 10. Given that Russia is now a key ally of China, the failure in Ukraine may have neutralized China’s ambitions in the South China Sea and delayed their ambition toward Taiwan. It is likely that you will see Japan build up their military now to protect themselves against Russian or Chinese aggression.
I think Australia could become a powerhouse in the South Pacific—they certainly have the opportunity to do so should they want it. I believe Vietnam has an opportunity to become a commercial powerhouse. They have an incredibly industrious population. As you can see, there are a number of ripple effects triggered by the Russian/Ukraine war.
Geopolitical change creates opportunities. We will be digging deep to understand how to capitalize on those opportunities.
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