Performance Update Q3 – Lessons learned from Hurricane Irma

i-Cthru’s consolidated time-weighted return over Q3 2017 is USD 10.77%; EUR 7.49%. This result is unleveraged, net of all trading costs, fees, dividend tax withholding for non-US clients and cost of protection of individual portfolio holdings.

Doubt is an unpleasant condition and to know that you can never be sure of anything is quite unnerving. This point was driven home this last summer when we were upgrading our house in Sint Maarten in the Dutch Caribbean. We were almost finished with our upgrades when the island was hit full on with a Category 5 Hurricane. Sustained winds of 190 mph (300 km/h) with gusts of over 210 mph (350 km/h) mixed with tornados that lifted containers full of cars like someone nonchalantly flicking a matchbox up in the air.

So one moment, we were enjoying the sun, blue waters, waving palm trees and the warm Caribbean breeze, and the next, we were hit by a raging out of control monster storm full of mayhem and destruction. The weather forecasters (NOAA) did a really good job, so we had plenty of time to prepare ourselves. Even so, the storm upgrade warning from Cat 4 to 5 happened only 24 hours before the storm hit us, we had sufficient time to double our water supply and take everything that could fly inside or lash it down. But still, the intensity and precise path of Hurricane Irma was a big surprise, let alone the amount damage it rained upon us in a matter of hours. We had hardened ourselves by living through Cat 2 Hurricane Gonzalo three years ago, sailing through bad storms and looking at videos of the last Cat 5 Hurricane Luis that had hit Sint Maarten in 1995. We knew, therefore, it was going to be apocalyptic.

Still, the shock of the devastation was overwhelmingly real and our emotions were more intense than rationally anticipated. We had never experienced seeing the fast devastation of so much hard work and beauty in such a short time. This is a lesson we will take at heart.

The days immediately after the storm were very strange, to say the least. As always in times of despair, the good, the bad and the ugly come to life and we saw it all. This is part of who we are. The rest of the world continued with its daily routine with Irma’s destruction as its headline news. Not that we could read it, the island was dark and silent: no communication, no Internet, no electricity, no water. It is the strangest thing to go from having the world at your fingertips to nothing at all.

Life quickly shrinks to interaction with neighbors and nearby friends, helping each other out, sharing the little we had. We had enough cash, a full tank, and our car had survived. It took denying the curfew and driving several times through military roadblocks to and back from the airport to what seemed the only reliable source of any kind of information and sporadic mobile phone coverage to get the right information. Everybody’s food and drinking water supply were dwindling fast. Some water bottles were selling for $30 a gallon. Nine days after Irma hit we were able to hitch a ride with the US Air Force. We are very thankful for them. Twenty-one days after Irma hit, water and electricity were restored in most parts of the island and shops were generally open again.

The similarities with investing in the stock market, a steadily rising, low volatility market and the sudden $600 Billion bankruptcy twister of Lehman Brothers rocking the world markets to its core are not lost on us. Forecasts are often little more than extrapolations of the past and can be suddenly blown off course by an unlikely and unexpected event. Diversification is often an illusion. Our portfolio of 300 stocks would have fared little better than the one with 10 when the tide rushed out. Insurance is important but not at any price and not for all setbacks. It makes more sense to insure for a significant correction: one day it will be there. Ray Dalio, a hugely successful investor, says history repeats itself and looks for similarities in the past to understand the current times. Have a look at this article from 1995 New York Times. It could have been written three weeks ago.

We have our system and procedures in place. We don’t have to think when the house is on fire. We have thought about this and our decisions have been taken. All our procedures and portfolio protections are set in place while it is quiet and we have time to think things through. We have cash on the side as an option to invest when the time is there. We know now for sure our emotions will try to play a trick on our rational self, especially in the midst and just after a big correction.

You see the markets today are ticking nicely up, quarter after quarter. The sun is shining, the palm trees are waiving and the seas are blue.

Thank you for your trust, it means a lot to us.