11/05/2009

My Black Swan

I bought a farm.

I bought a farm located in an area that receives about 18 inches of rain per year.

The year that I bought the farm we received about 1 inch of rain.

A neighbor of mine who had lived in the area for over 80 years told me this was the driest year he had ever seen.

This was my black swan.

I was highly leveraged and in no financial shape to with stand such a shock.

Through sheer idiotic stubbornness (working 10 hours a day 7 days a week off the farm) I survived the event and did wind up selling the farm for a profit 10 years later.

But I was never the same person after that.

I have seen two oil / real estate bubbles rise and fall in Alberta.

I have seen a technology bubble rise and fall.

I have seen the 1987 black Monday stock market meltdown.

I have seen the 2008 stock market collapse.

I have seen crude oil fluctuate between $3 and $147 dollars per barrel.

I have seen interest rates fluctuate between 21% and 2.00%.

I'm 45 years old.

Hopefully I'm only half way gone.

I wonder what the next 45 years will bring.

How do I protect my family from future rare events?

Number one, I disagree with Taleb on these rare events.

I don't think they are all that rare.

Number two, I agree with Taleb that the best way to protect oneself is to stay, or get, deleveraged.

Number three, I must own assets that can survive "rare events".

Assets such as cash, gold, land, and companies.

The companies that I own must live with the same leverage principals that I live with.

With all this in place I still may not be properly prepared.

Why?

Because the real black swan is the one you have never seen before, the one that no one has seen.

I guess for that there is no preparation.

10 comments:

daytrader233 said...

My Black Swan was getting married. But that's a different story.

Swamiguru is only 45? I had you at 55-60 minimum.
:-)

longandwrong said...

My usual pathetic attempts at humour are much easier to write, but for once I am going to be relatively serious...

It seems to me the best way to survive 'black swans' is to develop self-reliance; this is supported by traits such as intellectual curiosity, multi-disciplinary thinking, taking responsibility, self-control, hard-work etc...

Trading as an occupation goes some way to developing these qualities, I imagine that 10 years of farming did too!

Solfest said...

I think you're right LW. I have watched some shows on people who have lost their jobs in this recession and it makes me sad.

Not sad that they lost their jobs, sad that they are clueless about what they should do.

Harsh?

I guess so, but I don't think you should ever put yourself in a position where you become 100% reliant on another entity for your well being.

The show I watched was on a union auto parts shop. These people were not only dependant on the company that went bankrupt but also completely reliant on the union to "fix" things. When the union could not “fix” things they went running to the government and demanded that they “fix” things.

They all seemed incapable of thinking for themselves.

I hope my children never get in that mindset.

People need to see themselves as independent contractors. When one contract comes to an end you move on to the next one. You also never stop looking at new contract opportunities, even while you are currently engaged. You never stop learning, you always keep adapting, and you never let someone else determine your fate.

Solfest said...

DT you should have seen it coming. :)

daytrader233 said...

That's some great advice Solfest. People should always be looking ahead. Adapt and survive.

ANON said...

++ to your post

Going to try to learn something in my early twenties...we'll see how that goes. Haha.

Solfest said...

Thanks Anon.

Learning is like compounding interest, the earlier you start the richer you get.

Jules said...

Solfest,
Totally agree with you on the danger of depending on companies and unions for our livelihood. I read somewhere that Henry Ford was to be blamed..., before he came into the picture, people work on their own farms, and almost everyone's a business owner /entrepreneur. We live in a time where people are not comfortable unless they have someone to boss them around.
You're 45??? REALLY??? I always thought you're 90!

Solfest said...

I just look 90.

longandwrong said...

The 'cat/ferret/weasel/stoat/otter/mink-thing' doesn't look a day over 89.