Day of Reckoning

June 2011, Hawkes Bay Business

At a dinner party diners were being assailed by an apparently knowledgeable gentleman (John) who was providing a grim prognosis for the global economy for the next decades.

Aside from killing the relaxed vibe of the occasion, John was keen to give the guests some free financial advice. This largely consisted of buying gold, storing up on food and guns and heading for the hills.

Asked by one diner where he received this somber information, he said 'they' were all saying it. The next question, of course, was if 'they' were all saying it, where was the evidence 'they' were acting on the advice? A quick survey of the guests and the surrounding neighbourhood did not suggest people were packing their cars and heading for the hills - indeed, life appeared to be continuing on as normal. Maybe the mysterious 'they' hadn't spread the word here yet.

One astute diner asked if things were so glum, why John wasn’t acting on his own advice and selling up and heading out of town.

His answer was that it wasn't quite clear when this catastrophe would occur, so he was staying put for now to "see how things panned out". He also was keeping one foot in the market "just in case" - and he had some cash on hand in a bank deposit.

Another diner offered some free advice of his own.

"These theories about financial and economic apocalypse—does anyone else know about them and believe them?" he asked. John nodded.

"Well, wouldn't those fears be reflected in the market prices?" he added. John nodded again, more slowly.

"So presumably the people who agree with you would be getting out of the market, or at least thinking about it?  If they are selling their holdings, someone else must be buying them, obviously someone with a different view to your own?"

John was a little less confident now and looked around the group for support – everyone was quiet, apart from some nervous clearing of throats.

"But let's just say you are right," he went on. "If your scenario is as bad as you say it will be, won't the price of our stocks be the least of our concerns."

John at this point was thinking of how he could leave the dinner party to spare himself any further embarrassment.

"But say you're only half right and things won't be so bad, there'll be some opportunities in the market won't there? And if you're diversified across a range of assets, you've got some protection, haven't you?"

"You see, those things that keep you up at night, I don't worry about. I let the market do my worrying for me. Chances are all those concerns are already in the price - and with the greatest respect, it's very unlikely that you know anything that someone else hasn't already thought about.

"I only take risks I'm comfortable with. I know the returns aren't going to be there every day or every month or every year, but my focus is 20–30 years from now. Of course, there is a risk that things could be worse than I'm hoping, but there are also risks they might be much better. There's always uncertainty, isn't there?"
John couldn’t agree with that statement.  Indeed he was fairly certain he wanted to leave the party immediately, until the astute diner offered some further thoughts. 

"Let's eat, then we'll watch the rugby on TV and after that you can tell me whether you still think the world is about to end."

For the first time that night, John smiled.