Moving Mountains (Part 1)

How does respect fit into risk management?

When you’re in the mountains, the first thing you learn is respect for the mountain. No one ever “conquers” a peak. Hillary didn’t “conquer” Everest; Whymper didn’t “conquer” the Matterhorn. The men and women who made first ascents did something unprecedented, but the mountains are still there.

And what we respect is the mountain’s weather, its terrain, its remoteness, its unpredictability. Mountains have a way of surprising you, and because you can be far from help, minor issues can turn into major emergencies.

In the same way markets can be infinitely surprising. What should be an orderly process of buying and selling can break down, and you get a “flash crash” like what happened in May of 2010 or supposedly safe portfolio insurance can cause a market meltdown like October 1987. Markets are always creating a new new thing, and new ideas engender new risks and opportunities.

Respecting markets means working with them, not trying to outsmart them.

Douglas R. Tengdin, CFA

Chief Investment Officer

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