Risk and 2 Hikes
“Thus the prerequisites for risk control also include humility, lack of hubris, and knowing what you don’t know.”
Howard Marks, Co-Chairman, Oaktree Capital
My buddy Jeff and I both share a love of the outdoors and hiking. Jeff is an avid outdoorsman with loads of enviable experience. Over the course of this past year he had repeatedly mentioned that he wanted to hike a 21.9 mile piece of the Appalachian Trail (AT) in Georgia to complete the 76.4 miles of the trail that crosses the state. One day a few months ago he mentioned it yet again. One too many times for me! Let’s stop talking and do this!
Brian: “Jeff, on October 19th we are getting this done. Okay?”
Jeff: “Sounds good to me. Let me check that date with Elena (Jeff’s wife).”
We were now locked into a date. We had a goal and now the beginnings of a plan. We invited another friend, Flip, with whom Jeff had been marathon training. Elena created our plan to navigate forest service roads to drop a car near our termination point at Springer Mountain and rendezvous to Woody Gap.
October 19th came and we met at 4:15 AM for a breakfast of champions at Waffle House. I packed 3 liters of water, a tuna sandwich, fruit, and protein bars. I made sure everyone was overflowing with water consumption to take the risk of dehydration off the table. I did notice that Jeff had packed a whistle, a first aid kit, and an emergency foil blanket. The less experienced “me” remembers thinking to myself that this was a bit of overkill.
The day started out cool and settled into a beautiful sunny day in the 60s. We ran about 6 miles and briskly hiked the balance of the miles and finished in just over 8 hours. It was a phenomenal and, fortunately, uneventful day.
Needless to say, I got to the office the next morning and was a bit stiff. I settled into my chair and was working my way through emails when I came across a new message forwarded from my fellow team member, Cindy Lovingood, which was entitled, “Yikes”. It was from a man who had been 130 miles north of us at Mt. Leconte, TN and it read:
“The hike up Saturday was perfect, with clear skies and the temperature hovering around 50. But in typical Leconte fashion, that night brought a low of 28 with a little bit of sleet/freezing rain… While we were at breakfast yesterday morning, we saw a ranger and some of the staff bring a family in with some young kids that we knew had not spent the night there.
Long story short - they were tourists from Louisiana, started a 13 mile 'day-hike' at 2 PM Saturday (with 4 kids, the oldest only 8 or 9 years old), and never even made it to the top before dark. They didn't have flashlights or any cold weather gear. We figure they probably stopped hiking between 8-9 PM since they didn't have a flashlight (it got dark around 8). They finally got a 911 call to go out around 3 AM, and Rangers found them at 7:15 AM Sunday morning. So they probably spent around 10 hours in 30 degree weather, with sleet and freezing rain, and probably nothing more than sweatshirts or long-sleeved t-shirts.
After the ranger found them only a mile from the top, they assisted them the rest of the way up, where they got food and hot chocolate, dry clothes and got to warm up. Luckily everyone was okay. Very lucky people, this could have been a lot worse.”
Two thoughts flashed through my mind after reading the message:
- I harkened back to thinking that Jeff’s preparedness was “overkill”, my hubris and “knowing what I don’t know.”
- I thought of this incredibly pithy quote from E. Graham Holloway who was a former Capital Group Executive:
“The problem with risk is that you don't know that you've taken too much of it, until it's too late.”
Obviously, this unfortunate family had no plan, no experience, and no contingency plan and then it was “too late.” They just had simply no clue that they didn’t know what they didn’t know!
So, how do you approach minimizing risk? The following are a few thoughts from Warren and me:
Plan
Jeff and Elena had spent time laying out both our pre-hike plan and actual hiking plan. Do you really have one for your financial future? Have you synthesized your life’s priorities, goals, and concerns with your financial priorities? Do you have a solid grasp on whether your mortgage and other liabilities will be paid off by retirement age? These are simple examples of risks we discuss and attempt to minimize in our Pre-Training Preparation and Marathon Roadmap Process.
Experience
Jeff’s years of outdoor experience informed him of the potential risks that I had either not even considered or simply dismissed. The family near Mt. LeConte obviously had no experience to inform them not to start a 13 mile hike in the mid afternoon with four kids. Does your life experience lend itself to managing your financial future? Have you ever contemplated “knowing what you don’t know?” I believe one of the greatest strengths that the 60 years of experience that Warren and I bring to bear for our clients manifests itself in our humility towards financial markets. Our 60 years of experience is evident in our Investment Philosophy Synchronizer.
Contingency
What is your proverbial foil blanket and whistle? How you allocate your portfolio can certainly be viewed as a contingency plan. Having 23% in Utility stocks in a low interest rate environment because your Daddy always liked Utilities is not a valid contingency plan. Neither is having an abundance of cash waiting for the right time to invest. Having a disproportionate amount invested in real estate is not a good contingency plan. An example of a simple contingency plan is owning an Umbrella liability insurance policy. More apparent contingencies such as life and disability insurance are some of the topics we discuss in our Family Security Training.
This message is timed to coincide with my return today from a three day, two night backpacking trip in the Smoky Mountain National Park with my friends Jeff and John. Jeff has a lot of experience but John has even more and is a phenomenal trip planner and a time-tested guide. He helped reduce our risk and we had a great time in sleet, ice, and low temps that were down right frigid at night. My 0 degree rated sleeping bag that I borrowed came in handy. There were no surprises and I didn’t come close to taking too much risk.
Have a plan, utilize experience and wisdom, and have a contingency to help reduce your risk in some way today.
Thank you for the trust and confidence you have placed in us and giving us the opportunity to provide education to you on your way to building your wealth.
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