Breadth Thrusts & Bread Crusts: Surviving the Extremes

JC Parets
September 16, 2021

From the desk of Willie Delwiche.

It was the final stretch of the last sailing race of the day on Lake Michigan. 

A couple of my good friends squeezed the race in just before the weather started to deteriorate. They could see clouds in the distance. The wind was picking up and gusts were intensifying. 

In the boat, the cool-handed skipper was catching as much of the wind as he dared, the boat heeling sharply to one side. Those on the high side were leaning over the edge as far as they could without losing their grip. Those on the low side worked their ropes, trying to avoid getting swamped as the rail dipped below the surface of the water.

But a huge gust came up as the finish line came into sight. 

It was powerful enough that those on board took a deep breath, expecting to soon find themselves tossed into the lake. If the boat was going to capsize, this would be the moment…

Instead, the quick-thinking skipper had them loosen the ropes and slacken the sail. They lost the wind. But the boat remained upright and they managed to win the race.

As well as the crew performed, their success in the race hinged on what they did the moment when they were most vulnerable.

The same is true when it comes to investing. Success isn't determined just by holding on for average. It's about surviving the extremes. If we do not make it through the worst moments, long-term gains cannot accrue. We cannot thrive if we do not survive. 

This is why the risk management process is so important. I'm not talking just about market risks, but our risk tolerances (both financial and emotional) in the face of various market environments.

Even if the boat doesn't capsize, we can jump or get tossed overboard if we are not prepared when conditions deteriorate. A steady hand on the tiller and an ability to adapt to new and unexpected developments is important. But so too is knowing how far we can lean into the wind before we lose our margin of safety.

My friends made it across the finish line, enjoyed a few beers afterward, and now have a great story to tell. They can talk about the success of the season because they made it through those extremes.

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