Building a castle to protect against end of times. That is the premise of a new reality show:
I have no doubt this guy and his family will be better
prepared than I for societal collapse. I
also have no doubt his opportunity cost (i.e. the value of the alternative
given up in pursuit of building a castle) is astronomical. This is amplified by the extraordinarily low
likelihood of a situation where a concrete castle complete with sharp shooter,
a catapult, archer posts, etc. is required for survival.
Bringing this back to investing, a profitable trade is one that essentially sells the end of
capitalism and democracy as we know it.
Profitable is italicized as the profitability is for whoever is selling
the trade, not the investor actually putting capital to work. Fear sells, the more extreme the better.
This trade can be take various forms - Treasury bonds crash,
the Dollar collapses, equity markets cease to trade, etc. - and is almost
always followed by a claim of certainty by the seller. Much of the pitches I have seen and heard
involve “structuring your portfolio for
the inevitable XYZ.” This can come
at a substantial opportunity cost to the investor (a good example is the
omnipresent and immediate inflation, which is just around the corner, and has
been predicted since 2008).
Technical issues aside, I find the central issue many of the
doomsday traders fail to recognize is that most people in our society want a
better world. They enjoy their lives
relative to the alternative chaos. Thus,
even if all points are reasonable (side note, surprise they never are) nearly
everyone is comfortable believing the status quo even it’s a lie is far better
than living in a cave.
Much of this is semantics, and while a certain trade may not
end in society imploding there certainly is a risk that a portion of it will
play out. Still, instead of gearing your
total portfolio to capitalize on the unlikeliest of outcomes, it would make much
more sense to maintain the present course and buy deep-out-of-the-money options
on assets that would benefit should something resembling your own personal
doomsday scenario play out. That way you keep your opportunity cost low
and feed your disaster beast.
Lastly, take any doomsday scenario an investment professional is selling and take it to the end
game. For instance, if the dollar
collapses and everyone is running for the high ground does it matter how your
portfolio performed? Of course not. I’d rather have a doomsday castle.
The views and opinions expressed herein are those of
the author(s) noted and may or may not represent the views of Capital Analysts,
Inc. or Lincoln Investment. The
material presented is provided for informational purposes only. Nothing
contained herein should be construed as a recommendation to buy or sell any
securities. As with all investments, past performance is no guarantee of future
results. No person or system can predict the market. All investments are
subject to risk, including the risk of principal loss.
