Expect the Best, Prepare for the Worst, Capitalise on What Comes
I got my learner’s permit the day I turned 16.
After buying a pair of Doc Martins, my mum took me home for my first ever driving lesson.
The adrenaline overtook my body as I rolled down the street. I gripped the wheel tightly because it was the only way to stop my arms from shaking.
Then came the left turn out of the street.
My mum assumed I knew to ‘pull’ the steering wheel through in order to turn a corner. After all, I’d been watching other people drive for years.
Instead, I yanked the wheel on a 45-degree angle to the left and wondered why the car didn’t go the way I wanted.
Mum squawked and made noises about a tree. I stopped the old Falcon in the middle of the road and claimed there was no way we’d even mount the kerb going at four clicks an hour.
That was the first and last lesson my mum gave me. After that, dad took over.
My old man — with decades of paddock bashing and defensive driving under his belt — knew that watching and doing are two different things.
Not only that, he understood the jitters and nerves that came with learning how to drive. How to control them, and react calmly when your insides are seizing up.
A couple of years later, I got my licence.
I was ready for freedom and to drive off on my own.
Instead, the old man took me down to what the locals call the police paddocks outside Dandenong. I parked, and my dad turned to me and said, ‘Let’s get this baby sideways.’
That afternoon — and for the next few weekends that followed — dad let me zoom around the wet grass and mud. What looked like a hoon in the paddock was really a young kid learning how to control an out-of-control car.
In other words, he taught me how to mitigate risk.
And understand how to get myself out of trouble when bad stuff happens…
The time to act isn’t when the market is tanking…
What the heck does this have to do with investing?
It’s a perfect reflection of what’s filling my inbox at the moment.
You see, many of us know how to drive.
Far fewer of us are good drivers.
Only a small few understand how to avoid, or control, risk when driving.
It’s like driving on a wet road in heavy rain. You should slow down and leave more room between you and the car in front.
However, that doesn’t mean you won’t aquaplane. That’s where you lose traction because the tyres are lifted off the road by too much water. This phenomenon is beyond your control.
Aquaplaning only lasts a second or two, but it’s incredibly scary.
The temptation is to slam on the brakes.
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But that makes things worse.
Your best bet is to hold on to the wheel tightly and gently steer the car in the direction you want.
In other words, hang on and don’t panic.
The thing is, when a car does aquaplane, it’s what you did before you lost control that really counts.
Believe it or not, reducing speed and increasing the distance between you and other objects will reduce the likelihood of a crash.
It’s the exact same with investing.
Anyone can buy a stock…
But becoming a good investor requires discipline and practice…
A wise investor learns how to prepare for and navigate turbulent markets.
They learn to reduce or increase their risk according to market conditions.
Global and local market events can change the outcome for investors.
Regularly, I hear people say certain market events caught them by surprise.
The thing is, the time to act isn’t when the market is tanking…
It’s how you position yourself beforehand that determines the actual damage in the end.
Scaremongering or preparing?
I don’t write The Daily Reckoning Australia to scare you.
We look outside the norm here. We analyse the market differently, so we can bring you information and ideas before you need them.
Mainstream headlines are often stuck in a repetitive news loop, so they rarely look at outliers driving the Aussie economy. Or the broader global economy, for that matter.
But these unexpected events can have a powerful impact on your wealth.
That’s why we like to write to you about unlikely scenarios.
It’s not that we want them to happen. We want to prepare you for the unexpected.
If a catastrophic market event were to happen — and it does occasionally — it’s what you do beforehand that really matters.
Our goal is to give you the tools to navigate a market panic, if and when it arrives.
It’s like losing control of a car.
You can’t always avoid a crash. But you can change your driving style to suit the conditions, and thus decrease your chance of an accident…and the subsequent damage.
Until next time,