Risk Today

Why the new world of 'dis-order' constantly surprises us ...

As we awake every morning and power up our computers, read the local newspapers and turn on our televisions - we see things today that just a few years ago seemed unimaginable. Capital markets move up +20% and then turn around and drop - 20%. The conversation is heating up as words like collapse, depression and crisis have become mainstream and watching people, every where, expressing anger by taking to the streets forces all of us to confront a world we never expected. And, the mistake we seem to be making is by labelling this moment in history as a financial crisis. The financial crisis, the Middle East crisis, the banking crisis, the political crisis, the sovereign debt crisis - are all symptoms of disruption. In fact, disruption and volatility tends to catch most people out of position, which produces a virulent form of anger that must be expressed (a la - Wall Street demonstrations).

This, by the way may be the new logic of power. The very fabric of the balance of power in the world is being retro-fitted to one of those epical periods in history ... as Joshua Cooper Ramo suggests we have entered a world of uncertainty where history comes at us and it touches each of us whether we are prepared or not. We can no longer remain observers to history - our age forces each of us to participate ... either as victims or champions.

Revolutionary periods don't just destroy the old order - they create new fortunes and accompany major wealth transfer schemes. This transformation requires radical change - not only in the way we think - but also in the way we legislate, lead and live. What's most remarkable is that while Americans watch Dancing with the Stars, listen to their country music and live for Sundays (football) - history continues to touch every single one of us. We as humans seem to know a lot about the cycles of other species ... we know, for example, when the whales will be off the coast of the Monterey peninsula or when the swallows will show up in Capistrano every year - but we know remarkably little about ourselves, our own patterns of thought and behavior.

What we must recognize today is that what worked in the past tends to no longer work. In fact, many of the things that worked previously - now work in reverse. Meaning, the results of these actions not only carry a host of unintended consequences but they actually produce the opposite of what we would expect based on previous experience. Whether we're talking about growing or preserving our capital it's helpful to remember what worked yesterday doesn't work today. It's also useful to remember the people we refer to as "financial experts" have limited experience as well. Even if you find someone who's been in the business 30-40 years - this experience may prove to be a huge liability today. Think about it for a minute. Anyone who was convinced that they were safely diversified over an array of assets (equities, bonds, commodities, precious metals and real estate) in 2008 -watched their net worth plummet by 30-50%, on average. 2008 not only discredited the entire financial establishment, the random walkers and Modern Portfolio Theorists but it also exposed most investors belief systems about real estate prices and equity returns over 10 year periods as tommyrot.

This moment in time is one of amazing asymmetry -where even the smallest things anywhere in the system can cause contagions of disruptions throughout the entire system. What we're now beginning to see is that these disruptions can be more profound than anything we've experienced and quite possibly ever imagined. As we observe the ECB, US Congress and the US President we get real- time feedback on how people in these positions of influence are grossly miscalculating. As these political leaders try to manage constant newness with ideas that are ceaselessly failing. As the Egyptians, Syrians, Bahranians, Syrians, Greeks, Italians and Americans take to the streets, it's easy to become terrified by what we see as we have no reference points or action strategies as to how best to confront this. We'd like to remind you that we don't have to play the role of the victim to history here - we actually have the opportunity to step up here and do something truly unthinkable!

We all have an obligation to those closest to us to step up at this historic moment and choose not to sit and watch as history collides with our lives - but to step forward and use our lives to change history.

It's rather easy to be overwhelmed by the seriousness and importance of the moment - and even easier to move toward fear. But we must remember - just like all the epical periods in human history there is a paradox that grips society... and that is: those who take the biggest risks win. Let's be clear - there is a difference between being reckless and being fearless! What we are talking about is the more risk we take - the more adventurous we become - the more we get out there and do the things that seem like they will cause fear - the more hopeful we become! When we see multi-billion dollar companies rise from seemingly nowhere - as they disrupt the old paradigms and rules - we must remember each of these success stories is a direct result of fearless people taking on, what paradoxically looks like, enormous risks. Thank you, Steve Jobs - you reminded us that we're living at a time where most of us simply don't take enough risk! Yes, this is a counter-intuitive reaction when we're confronted with things we've never experienced.

Just maybe - the overwhelming lesson of history is that when the world is going through epical change - the winners are the people who take the most risk?

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