STREET DOGS

From Michael Antonelli at Bull &

As the Titanic steamed through the North Atlantic they had crew members constantly scanning the horizon for icebergs. On the sides of the ship, in the wheel house, in the crow’s nest, men spent hours looking for giant chunks of ice that posed a risk to the 2,224 souls on board.

As we all know, there was one iceberg they didn’t spot, one that came out of the darkness, one that doomed the luxury liner.

The icebergs Titanic’s lookouts couldn’t see were the ones that represented true risk. That same thought process is relevant to the market. There were countless outlooks to start the year talking about the economic weakness, debt, interest rates and earnings, which are all known icebergs. Did a single strategist write about a viral outbreak originating in the sixthlargest city in China posing a threat to a tentative global economic recovery? Of course not, but that’s true risk.

There’s a reason the phrase “stairs up, elevator down” exists.

What should we do about it? Here’s the thing: when a bridge builder builds a bridge and expects the maximum downward force on it to be five tonnes, she’ll build it to handle 10 tonnes. When a modern airliner is built, its wings are flexed further than any turbulence could possibly flex them. If true risk in the market is something we’ll never see, then the best we can do is build our portfolios to withstand a worst case scenario.

The longest drawdown in history for an all-stock portfolio is 13 years. Can you handle that? If not, then maybe it’s time to reexamine what you’re holding.

There isn’t a single person on the planet that can predict the future, especially with respect to markets and the economy. Preparation is, and always will be, paramount to your well-being.