Rodney Johnson | Monday, May 27, 2013 >>
In a closet upstairs I have a backpack, even though I am not a hiker.
This backpack is not a relic from my college days, and it is not covered in dust. It is the envy of the hiking world, or so I gather from both its review online and its price tag… exterior frame, adjustable 8,000 ways that I will never figure out, and easily reconfigured while out on a trail.
Inside of the pack I have a lot of things I’ve never used, like a camping stove, water purification tablets, some MRE’s (Meals Ready to Eat), and various other items that really cool hikers use, in addition to normal stuff like matches and a flashlight.
I don’t plan on taking up serious hiking anytime soon, but I keep the bag anyway, because, for me, it’s not about hiking, it’s about preparing for a storm…
I live in Florida, which has its perks.
I ride my bike often. I get to drive around with the convertible top down on my wife’s car. I sail in a weekly regatta just off the tip of our island neighborhood. There is no doubt that if warm weather activities are what get you going, Florida is a fabulous place to be.
Unfortunately, in addition to great weather a lot of the time, we have disastrous weather some of the time. Hurricane season is officially six months of the year, from June 1 through the end of November. In those months, many of us watch the weather radar to see what sort of patternrns are rolling off the Azores out in the Atlantic, because that is the geographic kitchen where most of the terrible storms we get are concocted.
But over the last seven years, something amazing has happened. We’ve had no named storms of any consequence come ashore in Florida. Yes, we’ve had flooding from storms that brushed by, and we’ve had tropical depressions that hung around, but nothing like Dennis, Pearl, or Andrew.
As each year goes by, many people become complacent. They forget to stock up on canned goods and bug spray. They don’t replenish their supply of fresh water. They let the contents of their backpacks (which down here we call “go-bags”) go stale or out of date.
Sadly, the longer we go without a big, terrible storm, the more likely it becomes that we’ll get one, so all of the people who are being lulled into a false sense of security are the same people who’ll be hurt so badly when the next killer storm inevitably arrives.
I plan not to be in that group.
We keep our go-bags current. We update the contents, change the batteries, and more or less review our plans once a year so we have at least some idea of what we will do as the next storm bears down on us. In the meantime, I plan to keep riding my bike, driving the convertible, and sailing every week… which means enjoying what we have available as long as it lasts.
I approach our economy and investing the same way.
Looking across the economic landscape there is no doubt we have large, structural problems, starting with employing the youngest among the workforce all the way through providing for those retiring. In between we have issues with healthcare for all, and enough debt to choke… well… an entire country.
The path that we, as a nation, have chosen for dealing with these ills involves more debt on the public side, monetary policy that kills savers, and a general hope that the economy will somehow “self-heal” and create enough growth to paper over all of the major issues at hand.
This won’t work of course, as anyone with a 5th grade understanding of math can comprehend, but it doesn’t stop us from trying because our current path is one of no pain. What it creates is more pain later, when our debt and destructive policies finally lay waste to the last good pieces of our economy.
The question becomes, what do we do between now and then? Do we hide? Do we bunker down and simply wait it out?
That would be like closing the storm windows in Florida every June 1 and waiting for the end of November. It would guard against a terrible storm, but it would also shut out some of the best weather and activities of the year.
There is a better way, and it’s what we do in our Boom & Bust portfolio. We recognize the storm is coming, we just don’t know exactly when. In our preparation we identify the best things to have in our investing “go-bag,” like investments that pay streams of income, as well as a few investments that will float to the top in the next storm, like short plays on some high-flying sectors. These are investments that are clearly meant to protect us as things deteriorate.
But in the meantime, before the storm arrives, the investing weather has remained sunny, providing an opportunity to earnrn gains that we will protect when we see storm clouds approaching.
Sometimes this creates a sense of conflict.
People ask why we would suggest owning investments clearly favored in a time of growth when we’re outlining a major economic downturnrn. The answer is that we have to be clear about the goals of analyzing, forecasting, and investing.
There is no doubt that we want to protect our readers from the massive storm we see on the horizon, but we also want to earnrn the best returnrns we can along the way.
Sometimes that means using some capital on “go-bag items” that might get stale from time to time, but can give you great protection against a sudden storm.
Sometimes it means taking advantage of clear investing weather even though it won’t last.
Mostly it means doing some of both.
Ahead of the Curve with Adam O’Dell
Yes, we hold investments in our Boom & Bust portfolio from a wide range of industries, from healthcare to fertilizer. We’ve made investments in U.S. stocks and European stocks.