Investing

Focusing on tail-end consequences of risk

  • Last Updated:
  • Jun 30th, 2020 3:49 pm
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Deal Addict
Dec 3, 2014
2021 posts
1273 upvotes
Ontario
Gungnir wrote: Just a thought, Coronavirus will pass in time just like the December 2018 crisis did.
Where is the 2018 “crisis” on your chart?
Deal Addict
Oct 21, 2014
1475 posts
1819 upvotes
Burlington, ON
llpresident wrote: Where is the 2018 “crisis” on your chart?
It is GDP not stock market value, and I did not create this chart.
Deal Addict
Sep 2, 2009
1091 posts
768 upvotes
Ottawa
I think the tail-end risk is important to consider but not rule every decision. There are family members that were young during the Great Depression – and lived like paupers until the day they died… just in case it ever happened again (throw in World Wars and other crisis in there). While they may have felt they lived a lucky life to have made it through all of those events, I always wondered how much of their life was lived in fear/constant state of preparedness.

I invest (and live) in a way to minimize the tail-end risk. I do not focus on hitting 10x baggers or dwell on missing out on 10x baggers, since I know that there are also many cases where those opportunities go to zero. I also know that I do not *need* any 10x baggers to live a good life – steady as she goes also is mentally much easier to handle (and explain to the spouse) than having retirement/investments hit reset when a gamble does not pay off. More than that though, the “tail-end” risk of a steady approach is that it takes a few more years to hit the magical number; the flip-side is that it is nice to dream about hitting 10x over and over again but the risk of that is also many extra years needed to hit the magical number.
Deal Addict
Dec 3, 2014
2021 posts
1273 upvotes
Ontario
Gungnir wrote: It is GDP not stock market value, and I did not create this chart.
What the chart clearly demonstrates is that 2020 has seen the largest drop in GDP since 1995 when the chart began. This seems to illustrate that, from a purely GDP perspective, COVID is the most significant economic event of the last 25 years. I don't know if I personally agree with that, but that is what the chart you chose to include with your post makes clear.
Deal Addict
Sep 2, 2009
1091 posts
768 upvotes
Ottawa
llpresident wrote: I don't know if I personally agree with that, but that is what the chart you chose to include with your post makes clear.
I don't know what the laying effects will be, but I think it's the first time that many people, across the world, just stopped working.

Generalizing: Wars shift production. Recessions have rounds of cuts. One sector drops another can pick up some slack (or create a floor).

COVID got rid of all that.
Deal Addict
Oct 21, 2014
1475 posts
1819 upvotes
Burlington, ON
llpresident wrote: What the chart clearly demonstrates is that 2020 has seen the largest drop in GDP since 1995 when the chart began. This seems to illustrate that, from a purely GDP perspective, COVID is the most significant economic event of the last 25 years. I don't know if I personally agree with that, but that is what the chart you chose to include with your post makes clear.
That is what you take away from this? Wow, I just learned something about the way you think - you have the ability to find the cloud in every silver lining. There is always something that will knock us off course, I choose to be more philosophical about these kinds of issues. Perhaps this comes with more experience. Why focus on what is right in front of your eyes, there is so much beyond it?

In the longer term, Covid will go away but the actions you take now can set you up for the rest of your life. As always I am 100% invested, ex of savings for emergencies and buying things I like.
Deal Addict
Dec 3, 2014
2021 posts
1273 upvotes
Ontario
Gungnir wrote: That is what you take away from this? Wow, I just learned something about the way you think - you have the ability to find the cloud in every silver lining. There is always something that will knock us off course, I choose to be more philosophical about these kinds of issues. Perhaps this comes with more experience. Why focus on what is right in front of your eyes, there is so much beyond it?

In the longer term, Covid will go away but the actions you take now can set you up for the rest of your life. As always I am 100% invested, ex of savings for emergencies and buying things I like.
I'm learning that you seem to have a selective reading impairment. Did I not say specifically that I don't personally agree that COVID is as big of a deal as the GDP chart shows?
Deal Addict
Jul 23, 2007
4188 posts
2336 upvotes
Some of the top financial brains tell me what to do in the pandemic.

Nassim Taleb says I should use a "tail hedge" or not be in the market.

Both Jeremy Siegel and Burton Malkiel say the 60/40 portfolio is dead for retirees.

What should I do? What should I do?

Why, I think I'll just carry on with what I've been doing for the last few decades and ignore the smart experts. I don't know what the market is going to do moving forward anymore than they do.

Even though I'm not remotely in his category, I lean more towards Warren Buffet. As Canadian value investor Larry Sarbit whom I've followed sporadically for well over thirty years said recently in the Financial Post:

Warren Buffett, at this year’s Berkshire Hathaway Inc.’s AGM on May 2, said “I don’t know” 30 times during his discussion. In my history of studying and reading his writings and speeches, this is one for the record books.

.....and at the tail end of his article:

Predicting the future is very difficult. Yogi Berra said it best, “It’s tough to make predictions, especially about the future.” Even the best and brightest have gotten forecasts totally wrong.

The most important thing: Accept that you don’t know. Spend your time on things you recognize are important and know. Avoid the rest.
Deal Addict
Oct 21, 2014
1475 posts
1819 upvotes
Burlington, ON
llpresident wrote: I'm learning that you seem to have a selective reading impairment. Did I not say specifically that I don't personally agree that COVID is as big of a deal as the GDP chart shows?
Ah, what silliness. Let's review what you said:

"What the chart clearly demonstrates is that 2020 has seen the largest drop in GDP since 1995 when the chart began."

^ I am talking about focus and that is the focus, your opening statement. It is what you choose to focus on which will determine if you are successful and in that message you're focused on near term. Either way you seem to be getting agitated, so there's no reason to continue.
Deal Addict
Dec 3, 2014
2021 posts
1273 upvotes
Ontario
Gungnir wrote: Ah, what silliness. Let's review what you said:

"What the chart clearly demonstrates is that 2020 has seen the largest drop in GDP since 1995 when the chart began."

^ I am talking about focus and that is the focus, your opening statement. It is what you choose to focus on which will determine if you are successful and in that message you're focused on near term. Either way you seem to be getting agitated, so there's no reason to continue.
My focus is on maximizing risk adjusted returns. I was simply looking at the chart you posted, which seems to suggest that 2020 has experienced the most significant drop in GDP in the recorded history of your chart. That's just a fact. Look at the chart you posted again and tell me it doesn't clearly demonstrate that. In fact, it makes 2000 and 2008 look basically irrelevant in comparison.
Deal Addict
Oct 21, 2014
1475 posts
1819 upvotes
Burlington, ON
llpresident wrote: My focus is on maximizing risk adjusted returns. I was simply looking at the chart you posted, which seems to suggest that 2020 has experienced the most significant drop in GDP in the recorded history of your chart. That's just a fact. Look at the chart you posted again and tell me it doesn't clearly demonstrate that. In fact, it makes 2000 and 2008 look basically irrelevant in comparison.
I can see that. What I think you are not quite understanding yet is you're far too focused on short term results.
Deal Addict
Dec 3, 2014
2021 posts
1273 upvotes
Ontario
Gungnir wrote: I can see that. What I think you are not quite understanding yet is you're far too focused on short term results.
Well I've been a net buyer since COVID, so I'm not sure where you get that idea. I'm on my way over to "What did you buy" to advise of my significant addition a moment ago to CVS.
Deal Addict
Oct 21, 2014
1475 posts
1819 upvotes
Burlington, ON
llpresident wrote: Well I've been a net buyer since COVID, so I'm not sure where you get that idea. I'm on my way over to "What did you buy" to advise of my significant addition a moment ago to CVS.
I can only go by what you're writing here, if you were focused on risk adjusted gains you might have written something like:
"I am using the current environment in x and y ways to maximize risk adjusted gains." In this, the you're focusing on the environment and generating risk adjusted gains.

Now for what you said: "What the chart clearly demonstrates is that 2020 has seen the largest drop in GDP since 1995 when the chart began." - Here your focus is on the temporary effects of covid on GDP. Everyone already knows this information.. we can see that clearly, what is revealed is how you're processing the information and what you're choosing to focus on. Think this is distinction without a difference? Go back and look at my post history around the mid-February into March and tell me what I was thinking about. I didn't write everything I was buying, but I was calling out bad investing process, poor discipline (not sticking to plan) and ruminating on bad news that was causing the now infamous limit down days of March. Those who enjoined that madness are probably upset that they did. This is what short termism will do to your wealth.

Worrying about one year of twenty five is not how I got where I am now... anyway I'm glad you're buying. Remember to keep tabs on what you're thinking and not to get sucked in to negativity.

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