Investment plan: #1 The Philosophy

The reality that we should be reminded of everyday: we don’t know what the future holds.

Sounds trivial. Basic. Yet the financial press, the experts of all sorts are preaching all day long. Particularly these days when the markets are making new highs every week. They see the markets going higher, that security going lower, and that  future market as a sure bet.

What do we do with it? How do I set myself up for success?

I take the view that one has to manage their risks, first and before anything.

I'm not an uncontrollable gambler. I don't take uncontained risks. It is not the way I want, and any reasonable person cannot afford to live like that.

There is nothing sure about the next hour, about the future. There's a multidimensional structure of probabilities. The world will probably look very similar in the next minute, somewhat similar in the next hour.

Anything we are given is on a temporary basis. You can assume with a high degree of certainty that a number of realities will carry on to the next month. We know that there are factors that contribute to an expected outcome. A talented founder will certainly be able to execute on a strategy for his start-up. A popular neighborhood will quite probably ensure that a real-estate investment will be sound and safe for the next decade.

Assign a probability to anything we see, even what seems a sure bet, even what will always be there. One day it might not. And then what? You can only prepare, prepare, prepare. Look at all the scenarios, not just the possible ones, all the scenarios.

Figure out which ones are intolerable, which ones you will not be able to live with. Protect yourself according the probabilities of these scenarios happening, even if it means to completely remove yourself from these scenarios. They are intolerable.

Decide which scenarios we're comfortable with even if they turn out negative for us.

We need to take risks in order to earn a reward. But be sure to know what risks you're taking, or at least to assess how much you know, how much you don't want and what the impacts of each side could be on your portfolio.

The reward can't be the starting point.

Hope for the best and prepare for the worst.