The Importance of Pre-Planning

When we are on the way to a wildfire one of the things we do in the truck is prepare for what we might reasonably encounter when we get there in terms of hazards, weather conditions and possible strategy based on what we might know about where we are going. This puts everyone in a more prepared frame of mind which hopefully makes for more effective fire fighting and safer fire fighting. On a related note physical preparation is also important which means drinking a water or sports drink to get in front of hydration issues.

The analogy for investing is hopefully obvious. The catalyst for this post, oddly enough was Nassim Taleb's visit to Squawkbox the other morning. While he didn't seem to have a whole lot to say I was reminded of another appearance he made with Nouriel Roubini where Robin Farzad asked both of them, after they spent ten minutes spinning an economic doomsday scenario, how to invest for a child's college education. I ripped on him pretty good for wasting the opportunity but now I wonder if he wasn't prepared.

We've all had encounters with "important" people and will again occasionally in the future. I once had a five minute conversation with Jeremy Siegel and it was nice to be able to say something more than "hey, your Jeremy Siegel."

Long before the bear market started I wrote a lot of posts about preparing mentally for bear markets because the come along every so often and catch people off guard (not predictions so much as understanding of stock market cycles). Being caught off guard creates a higher likelihood for panic selling.

There are other things to prepare for as well like a meaningful back up in yields (now or later). Another example could be with takeovers, real or rumored. This doesn't happen often but one example was Yahoo from a couple of years ago. We owned it across the board and when I woke up one morning, I flipped on CNBC I saw the name going by in the screen crawl very frequently at a much higher price, found out what was going on (Microsoft was interested) and sold it immediately. As a personal rule of thumb, I expect that any time something like that happens I would be a seller--this assumes there is a large move up in the price. A final example is from the flash crash, I disclosed doing some buying (about 20 minutes too early as it turned out) in the face of what was obviously a malfunction--I prepare for this by maintaining a couple of spreadsheets of what 2% or 3% might be for everyone so that I can react quickly.

The above examples are relevant for me. You should of course explore what would be relevant for you and then be ready. We can't account for everything which is not the point but I think as is the case with working on a wildfire and working on a diversified investment portfolio, there are quite a few reasonable scenarios that we can prepare for.

The truck is not ours obviously but the Black Timber crew helped mop up our Green Fire from a few years ago and I just thought it was a neat rig.