Don't Be A Sucker

Don't be a sucker was essentially Nassim Taleb's answer yesterday when asked on CNBC what people should do with their money. He started to say "that is the problem with CNBC" but he managed to pull himself out of that nose dive and made it a productive discussion, in my estimation anyway.

Long time readers will know that I have been essentially saying the same thing in terms of figuring out what to avoid. Quite the opposite of needing to be one of the world's great thinkers figuring out what to avoid is more than simple it is simplistic, requires no supreme intellect or predilection to use the word robust (that last one was a humor attempt).

This last event was very easy to see trouble coming (although gauging magnitude was more difficult) for all the things I wrote about beforehand; financial's weight in the S&P 500, the inversion of the yield curve and the slow rolling over of the market starting in October 2007 giving plenty of time to get out. This required no intelligence, I did not "invent" any of these things. Anyone smart enough to understand what was happening in the real estate market at the time did all the better in figuring what to avoid.

Look at the world today, what should be avoided? Avoiding Europe might even be an easier call than financials a few years ago. Two countries have received bailouts in a span of six months and the path to contagion is very easy to construct with almost no analysis. This may seem a little assy on my part but market participants are weighing whether the worst crisis in 80 years in the US is finally done and whether the bailouts in the European union will cause the need for more bailouts.

The deeper you can to go the more unanswerable questions there are and while it is certainly possible there will be no more follow through on these issues in terms of equity prices, why take the chance on being "a sucker?" To borrow from yesterday's post; if the above pertained to Paraguay (just an example that is not really an accessible investment destination) it would take you one minute to decide no way.

The list of countries not touched by any of this, fundamentally, is very long; the Scandies, much of Asia, Canada, Antipodes, Latin America should be enough to get you started. There are also companies in the US that bypass the fundamentals of the crisis. This is not to say that there will be no need for defensive action in the future or that correlations won't go to one again but bypassing the heart of the trouble spots means you more likely only have to confront market risk as opposed to business risk. "Market risk" is really more about volatility whereas "business risk" is far more serious as anyone who owns Citigroup above $40 will tell you.