Putting Risk In Proper Perspective

The other day on my way home from fire training I saw some smoke coming up from a neighbor's property. He was burning various logs of different sizes to clean up his property. This sort of cleaning up is not uncommon but depending on the weather conditions this can be very dangerous, in fact this type of burning is banned during the fire season.

Somehow he was able to build his burn pile on top of the little stream that runs from the meltoff meaning water was running under his burn pile. Up one bank from the stream it was covered with snow so no danger there. Up the other bank it was dry-ish pine needles and regular forest litter and this is the slope that lead up to his house.

Don't worry there is no bad ending here but had the wind increased and kicked up a spark or two the risk, the only way this was going to go bad was the dry hillside between the fire and his house. Wildfire "rips uphill" and while he had mitigated several risks the biggest one was not addressed--burning over his house. This guy most certainly doesn't know what I do for a living nor does he reasonably know about this blog but if you are reading this; that fire extinguisher would not have helped a lick.

Anywho investing can obviously be a risky endeavor. I've written many times about every portfolio being vulnerable to something or several somethings. I think my neighbor missed the biggest risk, having a burn pile downhill from his house the stream notwithstanding.

A portfolio with a bunch of mutual funds from one fund company is relying on the same research team so the funds could overlap, a bunch of single country ETFs could leave the portfolio very overweight financial stocks, some folks put too much faith in things like MLPs, people can over commit to a story or theme and so on.

What maybe be an obvious risk to one person could be completely invisible to someone else. This ties in with behavioral quirks. We are often our own worst enemy. Had my neighbor burned down his house (we had that happen about a year and a half ago) clearly it would have been a horrible consequence of his own behavior.

Investors suffer horrible consequences of their behaviors all the time--the people who spend beyond their means, put 25% of their portfolio into a lottery ticket biotech (a reader shared this experience a few years ago); the list of possibilities is endless. Our ability to navigate risks like this will ebb and flow, it is possible to have more blind spots a year from now than you do today.

The first picture is from out on the road between Vancouver and Whistler. The second picture is from Squamish which is where the recent TV show Men In Trees was filmed.