“Fear of the unknown is the greatest fear of all.” — Yvon Chouinard, founder of Patagonia
In 2001, U.S. Vice President Dick Cheney observed that the U.S. had to confront a new type of threat: a “low-probability, high-impact event,” or al-Qaida’s desire to obtain a nuclear weapon. This 1% chance of a catastrophic attack required the U.S. government to prepare as if it were a certainty. The observation has become known as the One Percent Doctrine.
When advising my clients toward anti-fragility, I recommend a similar approach.
Your Personal One Percent Doctrine
After two peak-to-trough declines in U.S. equity markets in the decade between 2000 and 2010, I offer to you that we have to contend with a “low-probability, high-impact event” in your family’s financial well-being.
The One Percent Doctrine supports a disciplined and rules-based effort to align your people, strategy, execution, and results dashboard to preserve and enhance your walkaway money.
We Cannot Eliminate Risk, But We Can Manage It
The executives that we get to work with can withstand volatility — I’d say 0–20% market volatility. What they cannot endure is a trend change that loses half their wealth. The high-impact event of a 50% decline is too destructive.
Because of this, we have a discipline to understand the difference between a correction and a trend change.
Trend changes may occur in broad markets (like what happened in 2008) and occur in subsectors (like what happened in the oil and gas sector in 2014, when the price of crude oil went from $100 per barrel to around $50 per barrel). At Pulliam Family Office, we spend 99% of our time measuring risk and reward so you have data and information to make informed and timely decisions.
Ask yourself whether a risk-and-reward discipline would improve your:
- Monetization strategy — company stock concentrated position
- 401(k) plan stack, ranked from best to worst
- Diversified stock and bond portfolio
- Cash flow or liquidity strategy
To learn more about what I mean here, contact me.
Executives intuitively understand that risk and reward is either in their favor or against it. It’s not about timing the market; it’s about a disciplined and rules-based approach to determine whether you should be on offense or defense.
The only way to preserve your walkaway money is by building an expansive view of the unknown. Set up a meeting with Pulliam Family Office to devise an anti-fragility strategy for your family.
Any opinions are those of John Pulliam and not necessarily those of Raymond James Financial Services or Raymond James. Expressions of opinion are as of this date and are subject to change without notice. This information is not intended as a solicitation or an offer to buy or sell any security referred to herein. Investments mentioned may not be suitable for all investors. The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete. Any information is not a complete summary or statement of all available data necessary for making an investment decision and does not constitute a recommendation. Diversification and asset allocation do not ensure a profit nor protect against a loss. Investing involves risk, and you may incur a profit or loss regardless of the strategy selected.