One of the positive outcomes of the pandemic is that nature is doing the encroaching. Take a moment to watch this video of a leopard wandering through a restaurant. If you’ve already seen it watch again and pay attention to its eyes.
If you have any doubt about the how fearsome this animal should be, the eyes should have made that clear to you. So how does one manage the risks of being in that situation. Not being there is the most effective option, but what would life be if we didn’t leave our house and kept our money under the mattress. One of the people in the background suggested, “don’t panic and be respectful.” Its also good advice to live by, and a great investment strategy.
If you don’t respect your investment professional, the process, the companies and system you are investing in then you are not going to have confidence that your portfolio will endure corrections and crashes which means you’ll be more likely to panic.
Large fees are paid to hedge funds to avoid or capitalize on systematic risk, but I would suggest that trying to avoid systematic risk is not managing risk but adding risk. Market crashes are inevitable, but so are the rebounds if history is a guide. The thing we all fear the most is that there won’t be a rebound, which hasn’t happened in the US, but did happen in Japan which became known as the lost decade. So how do we hedge against our deepest, darkest stock market fear. Invest in companies that will endure the worst case, but unlikely scenario. Invest in companies you respect, who respect you, and who don’t stress the ecosystem. For those of us who are not stock pickers, we can just invest in funds that include the companies who are the foundation of this economy we enjoy and respect. The economy that allows us to Uber, Google, Zoom, to have iPhones, drink Pumpkin Spiced lattes, buy new cars and fly to our favorite places.