Late yesterday afternoon, I took my kids to watch the forecasted 40-50′ swells arriving on the North Shore of Kaua’i. These massive waves have gained energy from wind and weather systems over thousands of miles. As we watched them approach, I couldn’t help but notice the parallels between the surfers and investors today.
These big wave riders are highly trained men and women who have meticulously planned to be in this place, at this time, for this wave. They don’t ride them all, only the ones they deem makeable. Even then, with all of their knowledge and preparation, sometimes the wave they choose crushes them.
It’s not the outcome they expected, but they have trained for all possible scenarios. They know how to survive…patiently waiting for the wall of water to pass until they can breath again, until their jet ski driver sweeps in to pick them up.
So, what’s my point? How does this relate to the challenging market environment and how you make investment decisions?
The waves in your financial life can be caused by China, Fed policy, oil prices, inflation/deflation, anything that no one can control or predict with any degree of certainty. Like the big wave rider, you are weighing your capacity for risk in a perpetually uncertain environment against your long term goals so as not to make perilous short term decisions.
At the end of the day, it’s about choosing the wave that will give you the best chance of a great ride based on the conditions; at the same time knowing that you must be prepared to act intelligently and manage risk properly in the face of the unexpected.
Understanding, measuring, and managing risk is critical whether you are chasing big waves or a comfortable retirement.
Thank you for reading!