Weathering The Storm

I sit writing on a beautiful day, which could have been something else altogether.  For those not in Cayman, we dodged a Category 4 hurricane.  Or more accurately, a Category 4 hurricane dodged us.

There are only (currently) 5 categories of hurricane, with 5 being the most powerful.  A 4 is a big beast that you don’t want near you.  We were lucky, others haven’t been, and won’t be.  The storm is still out there.

The wise words of a few different wise men came into my head whilst thinking about this hurricane.

Firstly Carl Richards.  “You aren’t in charge of everything.  You do what you can, and then relax.” 

Whilst it was pretty clear by mid-afternoon on Monday that we were going to be spared the impacts of the storm, you never really know with hurricanes.  We have got better and better at forecasting, but we still lack precision even 24 hours out.

Preparation is key.  We had done what we reasonably could – secured the outside furniture, cut down a few branches around the house, taken the boat out of the water.  We always have ample supplies in the house so there was no need for panic buying.  We knew our house insurance was up-to-date. Having done those things and having taken a last look at the probability of tropical storm force winds (NHC clearly show this), we both went to bed that night calm and relaxed.  I slept soundly and woke at 6am the next morning to a fairly normal Cayman October scene – a bit of wind and some intermittent heavy rain.

Our preparation felt right for the risk that we faced.  We controlled what we could control.

Morgan Housel wrote in his amazing new book:

“The wisdom in having room for error is acknowledging that uncertainty, randomness, and chance – “unknowns” – are an ever-present part of life.  The only way to deal with them is by increasing the gap between what you think will happen and what can happen whilst still leaving you capable of fighting another day.”

We live in the Caribbean and should never be surprised by hurricanes, but this one did seem to come out of nowhere.  But that’s life in a nutshell.  Left field events, by definition, come out of nowhere.  And they are a feature not a bug.  As Daniel Kahneman said, the lesson to learn from surprises is that life is surprising.

Let’s accept that.  We can’t forecast the future.  We can’t even forecast hurricanes that well.  The key to our long-term financial success is having that room for error, that margin of safety.  It’s about not getting wiped out by too much debt or not enough cash or inadequate insurance. 

We build a margin of safety into all aspects of our life as an acknowledgement that we don’t know what will happen next.  But it’s even more powerful than that.  As Benjamin Graham once said, ‘the purpose of the margin of safety is to render the forecast unnecessary.’

Accepting that we can’t forecast the future is the first step. But true wisdom comes when we realise we don’t even need to forecast the future.  If we plan and prepare well, whatever storm comes at us, we will weather it.

Georgie

Georgie@libertywealth.ky

NOTE: If you don’t feel prepared for a hurricane, take a look at a post I wrote this time last year.