Now that the kids are back to school, the Halloween decorations are out in force. It is truly the scariest time of the year.
According to computer models, Hurricane Florence appears poised to make landfall along the Carolina coastline in the coming days. But that wasn’t always the case.
Tropical Depression 6 was a clump of fluffy clouds that formed off of the west coast of Africa on August 30. It was a nonevent. No headlines. No warnings. No danger.
Then Tropical Depression 6 organized into a tropical storm and received its name from the U.S. National Hurricane Center. Since most of the tropical storms that form off the coast of Africa do not make landfall in the United States, Florence only garnered a few media mentions.
Florence grew quickly into a formidable Category 4 hurricane far off the east coast of the United States, but then wandered into an unfavorable environment that reduced her once again to a tropical storm. This, too, occurs more frequently than making landfall in the United States.
A couple of days later Florence bumped into favorable conditions and rapidly grew back into a Category 4 hurricane that is now poised to unleash its destructive forces on millions of Americans, and we pray for their well-being.
The story of Florence is very similar to the storms that occasionally impact the financial markets, except financial hurricanes cannot be detected by satellite images or radar. There are no “cones” that illustrate where destructive financial forces are likely to make landfall. There are no reliable evacuation warnings.
As horrible as a Category 4 hurricane is, there is some comfort in knowing when and where it is most likely to make landfall.
In the financial markets no such warning system is available. Every day there are fluffy financial clouds in the sky and we could spend all of our time worrying which ones will evolve into rain showers, thunderstorms, tropical storms, and the occasional hurricane.
In our view, a better approach is to embrace the uncertainty of living in a financial world where there are both sunny and cloud days; always be prepared for financial hurricanes by having enough cash on hand to make ends meet no matter what the financial weather is like tomorrow; and hunker down when the occasional hurricane hits knowing that it will pass in due time.
Our specialty is not financial weather forecasting. Our specialty is helping our clients prepare for storms while enjoying the sunny days.
Quote of the week:
Daniel Crosby, Ph.D.: “I have 10 commandments, if you will; they sort of cover the waterfront for me, if people would do these things: First, in all markets, up down and sideways, you control what matters most. Second, thou shall understand risk. Third, start now, start again tomorrow, and start again the next day. Fourth, trouble is opportunity. Fifth, do less than you think you should. Sixth, forecasting is for weathermen. Seventh, if you’re excited about an investment, it’s probably a bad idea. Eighth, this time isn’t different, and neither are you. Ninth, you should be the benchmark. Tenth, excess is never permanent.”
Summer is over. The kids are back at school. If you look carefully a few trees are not quite as green as the used to be. Yes, fall is underway.