Vincent’s Blog: Hindsight, short sight, foresight

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It is mayhem. It is dark. The noise is deafening. Doors are rattling. Windows are being blown out and there is water everywhere. We are in the Caribbean and getting a direct hit from hurricane Gonzalo. We peak outside through the streaming rain and see, to our amazement, a huge tamarind tree lifting off like a faulty rocket from Cape Canaveral. Crazy! What’s up with these hurricane hunters and their forecasters: only hours ago the forecast was just one of a tropical storm… A week later and we enjoy the views of the Caribbean blue sea. The hurricane is long gone, on to Europe. It feels almost normal again, like nothing happened.

It is mayhem. It is red. The noise is deafening. The talking heads on television are screaming it is the beginning of a crash and there are losses everywhere. We are in the financial markets in October 2014. We peak at our screens and see movements in the bond and equity markets we have not seen for a long time. The markets are oscillating out of phase and out of control. Down 2%, up 2%… Crazy! What’s up with these forecasters, they said… huh… so many things. A week later and we enjoy the calm of the markets. Volatility is down and prices for protection are back to previous levels. It feels almost normal again, like nothing happened.

I told you so! It was so obvious that his would happen. How did you miss that? We could see this happening from miles away? I knew it! This was a long time coming. Yeah, we love it when we hear those statements. The experts line up to share their views on the how, what and why it is so clear. How is it that everybody always “sees” things so clearly when looking backwards. Why is our ability to look forward so muddy and difficult?

When Columbus sailed the Caribbean waters, he faced huge storms with strengths he had not encountered ever before. The word “hurricane” had not yet made it to the world’s vocabulary. When early participants in the stock market encountered its first major downfall in prices, people did not call it a crash or a correction. These phenomena did not exist yet. Only over time, provided with enough historical data, could we define hurricanes, their likely paths and stock markets, their likely corrections in very broad strokes.

Many houses in the Caribbean are not insured or have a high proportion of own risk. Many investors are not insured or have a high proportion of own risk. This is mainly because the cost of insurance is too high. Risk is therefore what you stand to loose, the unprotected part of your assets. Only with hindsight can we say: “I told you so”. Only shortsighted people will say so. Only people with foresight will protect at least part of their assets, at a reasonable price and know that hurricanes and stock market corrections do always happen but not when. Remember: “I told you so”.