Thursday, February 24, 2022

Just Because Someone Is Paranoid, It Doesn't Mean...

Before the stock market opened this morning I sent a note out to clients about keeping things in context, that there have been more military conflicts than most people can remember and that no matter the outcome, at some point the decline will stop then stocks will go back up and eventually make a new high, we just don't know how long that will take. War is bad for just about every aspect of life but not necessarily bad for markets based on history. I reiterated that I have no idea what the sequence of events will be. We have things in place to soften the blow of large declines and I think they are generally working. 

And right on cue, the S&P 500 closed in the green....by a lot....

On to today's main point about general preparedness. I tried to prepare portfolios for market upheaval a while back, mostly over concerns of price inflation but not entirely. 

Today I saw a couple of Tweets that I found to be thought provoking. One talked about the possible seizing of bank accounts of Russian people by the Russian government if the US/Euro sanctions prove to be very effective. I have no idea if that possibility is real but that's not what matters. I can't get to the point of ever thinking the US government would ever do something like that but I would say the steps Canada took over the Freedom Convoy were shocking. 

The other Tweet said something to the effect that, this is not a 20th century conflict. Hacking would play a much greater role with the example used of hacking a train to crash. 

Now, marry those last two paragraphs together, some sort of hack where American's financial assets are not accessible for a time. I don't think theft is the likelier threat, more like not having access to bank accounts to pay bills or buy food. I don't know how concerned to be about this. I naturally tend to assign very low probabilities to these sort of threats but there's no reason to totally ignore this possibility either. Having a little cash on hand if nothing else certainly is convenient. Having $100,000 sitting around the house seems excessive but the convenience of just $50 runs out pretty quickly. Next level, have some gift cards (we don't have gift cards for this threat). Next level after that, have some Bitcoin. We have Bitcoin but not for this purpose. We own it for the asymmetric potential and I don't want to have all the time into learning about Bitcoin only to see the touts turn out to be right and not own any. 

I will say I am more bothered about being hackable. I'll take being called crazy but I want no part of having my house on the internet, appliances, door locks and the like, or having something like an Alexa listening to everything going on in our home. Our cars are kind of old but I assume they are not too old to get hacked. I readily concede how extremely remote it is to have you car hacked. Our ATV is not hackable for whatever that's worth. 

The bigger point is mitigating problems that you can foresee. In life, this could include the things above or getting a couple of weeks ahead on groceries at the dawn of Covid (before the pandemic was declared) which I wrote about back then. In portfolio terms, this means something I have been writing about all the way back to the first version of this blog which is owning a couple of things that have a low correlation to equities just in case you get caught wrong-footed by the start of decline of some sort. 

That used to be a little more difficult, you could buy gold. You can still buy gold but you can also use a bunch of other strategies that used to not be accessible in retail products. I write all the time about the ones I use which include GLD, BTAL, MERFX, TAIL and a couple of others. 

The barrier to entry for this sort of safeguarding, in life or your portfolio, is pretty low. I think you just need to think about it a little bit. What are the biggest threats to whatever it is you care about? Ok, how do you mitigate those threats. Often, my thought process will use the words threat and nuisance interchangeably. I wasn't really worried about there being no food two+ years ago but I wanted to avoid the nuisance of long lines at the store or substituting to the point of eating crappy food for a couple of weeks or so. If you shop at Costco, there's no reason to ever run out of toilet paper. Just don't wait until you're down to your last roll. This is pretty reachable for most folks. 

No comments:

Is There A Secret To Beating The Market?

Blending together assets/strategies with different attributes, correlations and expected behaviors plays a huge role in how I construct port...