There’s rules for running the rapids. Follow them and you can prosper and even have fun. Ignore them and you’ll end up in the soup.
Rule number two is don’t avoid trouble—plan for it. Kayakers don’t try to avoid going over. They roll with the current and come up on the other side. And they always, always wear a life vest. That way if the worst happens, you can still float.
The investment analogy is to plan for investment errors. Nobody gets it right every time. There are too many variables: management issues, balance sheet surprises, changes in conditions, etc. The key is to have a plan to roll with the issues. Sometimes surprising weakness is a signal to buy more—sometimes it’s a sign to get out. The key is being ready to act when you need to.
And the life-vest is your safety net. Always have a safety net—enough assets in safe, liquid investments to get you through the most difficult conditions for a minimal time.
Financial markets will send problems your way. By preparing for trouble, you can be confident that the rapids’ rough going won’t sink you.
Douglas R. Tengdin, CFA
Chief Investment Officer
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