Investing

Being Robust

I’ve spent quite a bit of time thinking about the concept of being robust over the past six-plus months, both personally and professionally. Google and other online dictionaries define robust as strong and healthy, vigorous. Additionally, I think of robust as resilient and able to withstand the unexpected, similar to Nassim Taleb’s concept of anti-fragile. Anti-fragility is a quality that increases a system’s ability to thrive in response to stressors, whether it be extreme volatility or systemic failure. Personally, and I’m sure for many of you, the concept of being robust has taken on new meaning in 2020 after a pandemic that brought the global economy and so many businesses and individuals to their knees. Who would have ever thought having a huge stash of extra toilet paper would be necessary to be robust and to be able to weather a global pandemic?! But that’s exactly what robust is, being prepared for the unexpected and the unpredictable.

Preparing for unpredictable outcomes was part of the focus of a Ted talk last year given by Margaret Heffernan. She stated, “We can’t plan but we can prepare.” In other words, we can’t plan for what we don’t know but we can be prepared for the unknown. She highlighted the importance of being humble, having imagination and being brave. While most of us plan, it’s futile to attempt to plan for every possible outcome. It’s actually probably impossible to do so. However, we can prepare ourselves for unexpected outcomes. That preparation could be mental, emotional and/or financial. I don’t know who said the following but I’ve seen it referenced in multiple places, “Confidence is preparation. Everything else is beyond our control.” Being robust includes planning and preparation. However, increased planning doesn’t necessarily lead to better preparation or more robust outcomes.

Robust Investment Portfolios

Investing is fraught with unknowns and unpredictable outcomes. As a result, making investment portfolios robust should be the highest priority for all investors. This post isn’t intended to get into the technical aspects of portfolio construction. However, I want to highlight what I believe are the two key foundational principles for building and maintaining portfolios that can withstand the test of time.

  1. Neither we nor anybody else can predict future events or the timing of events with any sort of consistency.
  2. While we all face numerous risks when investing, the biggest risk we face is our own personality flaws and biases.

By accepting and acknowledging these two universal truths, we begin to develop the necessary humility and imagination required to make our investment portfolios stronger and more resilient to the unexpected outcomes that will inevitably arise. From there, all we need is a little courage to deviate from what everybody else is doing.