Here are the best things I read and thought about today –

• Morgan Housel continues to amaze, and here is his latest post on the three sides of risk. In the post, Morgan takes us 20 years back to his late teens and shares a tragic skiing incident that took away the lives of two of his best friends and ski partners, and how he survived by way of a fluke decision he had put no thought into.
   
  Talking about how that incident changed Morgan’s life, he writes –

   

  My risk tolerance plunged after Brendan and Bryan died. I broke my back skiing (no nerve damage) a few months later, which crushed it even more. I haven’t skied much since. Maybe ten times in the last 19 years. If I’m honest, it scares me.

  I’ve been risk-averse in other areas of life ever since, too. I drive the speed limit. I obey the seatbelt sign on airplanes. I invest in index funds. I don’t know if Brendan and Bryan’s death actually affected how I invest. But it opened my eyes to the idea that there are three distinct sides of risk:

  • The odds you will get hit.
  • The average consequences of getting hit.
  • The tail-end consequences of getting hit.

   
  The first two are easy to grasp. It’s the third that’s hardest to learn, and can often only be learned through experience.

  To say that the child is the father to the man is old news. We all realize the influence of our childhoods on the adult we become. Like the foundation of a house, our childhood experiences are the foundation on which the rest of our lives are built. And if the foundation is not solid — has emotional cracks and wounds — these affect the structure of our adult lives.

  Morgan’s story is so vivid that it took me to my early-teens, and also to a freak accident that I was involved in where a 180-degree turn seemingly saved my life, and changed my life.

  It was a late January afternoon in 1991, mom and dad were away to a relative’s funeral in another city, and so I and my elder brother took the liberty to play cricket straight after school. We were playing inside a relative’s residence’s compound. It was a two-storey house with a terrace that wasn’t accessible by stairs.

  A shot I hit sent the ball to the terrace. And since it was my hit, it was my responsibility to fetch the ball. I had done it earlier too, that is climb the terrace that had no access by stairs, fetch the ball, and then come down with ease using the wall support.

  This day was different, 23rd January 1991. My brother helped me climb the terrace and then went inside for lunch. He was confident, like I was, that I could come down on my own.

  I did come down, but by the force of gravity and not my ability!

  I slipped from the terrace and straight to the playing track, face down, with nose, jaw and chin fractured badly. I lay there for a few minutes, unconscious, before a passerby saw me and alarmed my brother and relatives.

  A 180-degree turn, that is, falling head down, may have ended my life there and then. And like what happened with Morgan after his incident, I’ve been risk-averse, and often fearful, in my life ever since.

  I am scared when my kids are climbing walls, even with appropriate gears. I drive within speed limits. I freak out flying on airplanes, despite knowing the odds. I don’t invest in index funds, but my choice of stocks are testimony to my inability to handle much risk. I hate taking on any debt, and whatever I took I paid off quickly. The thought of recommending stocks or managing someone else’s money, even friends’, turns me off. People who know me also know that I don’t speak as much as I write, because speaking frightens the living daylights out of me.

  As Morgan mentions, that one tail-end event changed my life, and that is all that mattered in setting my behaviour in the future.

  Anyways, he concludes his wonderful post thus –

  …once you go through something like that, you realize that the tail-end consequences – the low-probability, high-impact events – are all that matter.

  In investing, the average consequences of risk make up most of the daily news headlines. But the tail-end consequences of risk – like pandemics, and depressions – are what make the pages of history books. They’re all that matter. They’re all you should focus on. We spent the last decade debating whether economic risk meant the Federal Reserve set interest rates at 0.25% or 0.5%. Then 36 million people lost their jobs in two months because of a virus. It’s absurd.

  Tail-end events are all that matter.

  Once you experience it, you’ll never think otherwise.

  By the way, talking a bit more about tail ends, I calculated that when I moved out of school, I had already used up 95% of my in-person time with my parents (my father died last year). And by the time my kids leave school, I would have used up 95% of my in-person time with them. So, if you are like me, know that we are also in the tail end.

  The lesson for us is to keep this fact in the front of our minds when we are with our parents and kids and treat that time as what it actually is: priceless.

  Tail-ends matter!
   

• Morgan’s post left me with not much time to read and think about anything else, but here is ValuePickr’s Q&A with Kuntal Shah of Oaklane Capital. Kuntal is one of the deepest investment thinkers I find in India, and his thoughts are a must read always.

That’s about it from me for today.

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Stay safe.

With respect,
— Vishal

https://www.safalniveshak.com/all-that-matters/