Breadth Thrusts & Bread Crusts: Risk Breaks At Camp

JC Parets
July 22, 2021

From the desk of Willie Delwiche.

It was a voicemail that any parent would dread…

Hello, this is the nurse from camp. Your son had an accident. He's fine but I need to talk to you… 

I quickly called back to get the details. I was on the road just a few minutes later, making a nighttime trip to a rural emergency room 100 miles away.  As it turns out, my son suffered a broken arm during a relatively run-of-the-mill game of chase that involved jumping across a small ditch and not quite sticking the landing. He was doing what we sent him to camp to do.    

A couple of hours alone in the car gave me plenty of time to think about all types of risks and how they are unevenly distributed across both space and time. Accidents can really happen anywhere. Still, we have nurses at summer camps, not in our living rooms. Broken arms and other more minor injuries are more likely at the former than the later. 

By moving our kids off of the couch and taking them to summer camp, we are taking on more risk (more precisely, we are increasing their "broken arm" risk). But the reward of hours spent running around outdoors instead of on the couch in front of the TV is worth it.

I had to remind myself this is true even when accidents happen.

The shift from couch to camp is similar to judging risk and return among asset classes and making an investment allocation.

But as I was hurrying along the highway through the dark, I thought about other risks. The timing of this trip was certainly less than ideal. Driving through the night presents different risks than driving in the day. Visibility is lower. Drivers get tired. Deer (and other animals) are more likely to be crossing the road, especially in more rural areas. These aren't the static risk/reward tradeoffs between asset classes -- but the dynamic risk/reward variations across market environments.

We need to be aware of risks before we can even try to manage them. We need to acknowledge that a camp might pose different risks than a couch before we can think about the need for hiring a nurse. But if we don't acknowledge that risks also vary across time in the same way they vary across spaces, we turn a blind eye to reality. 

Given the situation, I certainly wanted to get to the ER as quickly as possible. But I was also driving more slowly at 9pm than I would have been at 9am. Some market environments argue for the pursuit of opportunity, others suggest guarding against downside risks.

Risk awareness isn't about knowing for sure what will (or will not) happen, but understanding the conditions under which certain things are more or less likely to happen. 

It's about evaluating probabilities, not looking for certainties. 

With awareness, we can adjust behavior. We can slow down even if we are in a hurry. We may not always need the nurse's expertise. But when we do, we are thankful that she is there.  

 

 

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