Cowboys, masked men, risk and mitigation

Risk minimization appears to be a challenging concept

Why not go all-in on stocks right now? After all, we’ve had a three month rally going on. Sure, you can say markets go up and down, and there’s a lot of downside risk, but what if stocks only go up?

As newborn day trader David Portnoy told Fox Business about market bears and the cautious investing pros: “Yet here I am. Beating them like a drum for the past three months at their own game. While they have been slow to react to the changing markets, I’ve adapted on the fly.”

Portnoy, a sports gambler who found the stock markets after pro sports shut down in March, believes little guys can leap in, trade like he does, and make a ton of money. What’s to lose?

Well, actually, he quickly lost $2 million, he said, with bad bearish bets. But then he figured out that stocks always rise and he’s been doing great ever since. Read and hear his comments here.

Now, not that I’m a stock trader, but it’s not my experience that stocks always or generally go up, or that it’s a safe assumption they will inevitably grind higher from here. But then I haven’t been trading like he has, for the past three months.

I have, however, spent a lot of time thinking about risk, and his approach seems a little bit risky to me. It’s a cowboy’s approach, or at least a movie gunslinger’s approach. It seems popular right now with a lot of people who have been stuck at home, unemployed, getting government cash and embracing day-trading to beat the boredom. What happens if we get another leg-down in the market?

This seems to me an example of the lack of appreciation of risk that’s widespread today, which is weird because COVID-19 should make us all super-conscious of risk. However, I see lots of people, and know lots of people, who seem to have become defiant in the face of today’s risks to body and life, and to their employment and business futures. It’s a little weird and I’ve been trying to think my way towards and understanding.

I see it with people refusing to ever wear masks in crowded indoor environments, although it’s a well-documented way of reducing the risk of spreading diseases like COVID-19. I see it with Portnoy’s type of bullish trading. I’ve seen it with protestors filling the streets despite warnings to avoid large public gatherings. And I’ve seen it with many, many people who seem fed up with all the restrictions and privations of the past few months and just seem to have absolutely abandoned even minimal measures of coronavirus risk minimization. Near where I live in Winnipeg a number of restaurant/bar patios have been stuffed with people thronging like we’re still in the pre-coronavirus world. So too have some abandoned caring about their employment futures, preferring to stay at home and collect (temporary) government cash instead of returning to jobs that will remain long after the government money disappears. Will there be jobs available in two months time?

I wonder, and I think I’m concluding, that people are overwhelmed by the size of the risks today, are frazzled by the thoughts of their enormity, and find their brains fritzing out by an inability to find a way to entirely eliminate the risks of COVID-19, unemployment, business failure, and financial risk. That’s where the mistakes are being made. People are having trouble embracing risk mitigation and want either total risk elimination or to simply defy and ignore the risks. People often have trouble handling the reality of risk and would rather ignore it than minimize it, perhaps because minimizing it requires one to think about it. So, many will never wear a mask, won’t socially distance, are ignoring the likelihood of long-term unemployment, are still shaking hands with others and are just winging it with COVID-19 risk.

Farmers are well acquainted with risk management. It’s a central element of most of what farmers do, from being cautious with seeding dates to careful monitory of weed and bug levels to hedging prices to crop insurance and safety net programs. Perhaps farmers are better at dealing with need to minimize risk without ever being able to believe that they have eliminated the risks on their farms and in their businesses. I hope that’s true, and for many of you I know it is, from talking with thousands of you over the 25 years I’ve been here.

Crop farmers have been free from most of the COVID-19 risks so far, and blissfully occupied by the manifold demands of the present crop-growing season. Most of these risk issues affect others right now. Maybe they’ll all be gone by November, when farmers have a chance to raise up their heads and see how urban society has fared. What kind of a fall and winter we get is impossible to tell right now, but I’m guessing it’ll have a lot to do with the risk mitigation undertaken today by people in the cities. Let’s hope the risk denial and rejection by so many turns out to have been a fortunate gamble, like Portnoy’s been making in the markets. However it turns out, we’ll be living with the consequences.

 

 

 

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