In 1994 thru 1995, when the bond market had a very turbulent period, we began explaining how we approached markets such as these as “Storm tested.” The irony was that few West Coast folks have ever been in a violent storm, as they are not common here.
Expanding on the idea more, allow me to use a common misconception from maritime (ship) law. There is a common term used called “right of way.” In fact if you read the law, you will find that for cars, planes and ships there is no such concept of a “right.” In fact, all parties are obligated to avoid collision. No one has a “right” to do anything, if it causes a collision.
Since the concept may be new to the reader, there is a valid reason for this. In an accident, an insurance company wants the vessel’s operators to have a set of rules for behavior. There is a lower cost to insure or a greater chance of not being at fault if one has followed the rules. These rules are there for operators to be clear on what the other operators are supposed to do to avoid the collision in the first place.
When you grow up in storm country, you learn quickly it is not just the storm that is dangerous but also other people. Someone who doesn’t keep their trees trimmed may send an airborne branch through a window. Collateral damage is a very real problem, in storms and in markets.
When we speak of Storm Tested Investment Management, we aren’t speaking of people in raincoats after a storm. We are speaking of our awareness about how market-weather and the poor preparation of others can impact our client’s portfolios.