risk analysis

The Road Not Taken Looks Real Good Now
Photo shows Taylor Swift in front of skyline.
Big Machine Records 

Taylor Swift has made a name for herself as a songwriter, pop star, and fashion icon, but now she’s making headlines for another role: as an effective investor. 

Recently, Taylor was featured in the news for making a wise financial decision. She had a chance to be a paid sponsor for a—let’s say—questionable product. Instead of diving into a high-risk, high-reward situation, she asked questions, did her research, and declined the offer. 

Whether or not Taylor’s music is for you, we admire her curiosity and commitment to herself. Her influence reaches all over the world, and she showed that she was not going to stand behind something she didn’t believe in. And every investor has the power to do that work. We do the research so that we know exactly what we own, why we own it, and how it fits into the big picture. 

We at 228Main.com might not have the cumulative reach of Taylor—yet 😊—but we know how important it is to act by our values, no matter who is watching. It’s our responsibility. 

Taylor seems to know hers, too, but it took determination to build the reputation she has. You don’t achieve that pop sensation status overnight! She has worked her entire adult life to build her empire, and she was not going to risk throwing it away based on someone else’s opinion or make a quick buck (or a hundred million). 

One rash decision can cause a huge ripple effect, and most of the time, the impulse to do the trendy thing is not worth it. There are always going to be temptations in life, but it doesn’t mean any opportunity that comes along will work for us. Only we are in charge of keeping an eye on our future. 

We don’t mind going against the crowd. At 228 Main, we consider all the angles of an opportunity, with our own critical eye. We don’t rely on others’ opinions. (When the cattle are all getting steered together, it rarely ends well for the cattle.) Certain products might be getting a lot of attention, but that does not mean they are necessarily great investments. 

Please do ask your questions when you have them, and we’ll think about the potential outcomes together. We try to make informed decisions, in the direction of our goals. 

So be your inquisitive, confident self. Like Taylor says in her song “The Lucky One,” “In the real world, if you have something that makes you different, you’re lucky.” 

Dare to be different? Call or email us, anytime. 

Investing involves risk including the potential loss of principal. No investment strategy can guarantee a profit or protect against loss. Past performance is not a guarantee of future results.

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Play the audio version of this post below:

The Road Not Taken Looks Real Good Now – 228Main.com Presents: The Best of Leibman Financial Services

This text is available at https://www.228Main.com/. Photo credit Big Machine Records.

What You Don’t Know Can Hurt You

© Can Stock Photo / alphaspirit

In 2002 Donald Rumsfeld made headlines when he stood up during a press conference on the case for war against Iraq and proclaimed “there are known unknowns.” At first, this phrase sounds like a silly oxymoron. However, it actually makes a very important distinction. Whenever we are considering our planning, it is important to acknowledge both the risks that we know—the “known unknowns”—and the risks that we don’t—the “unknown unknowns.”

For example, suppose you are thinking about investing in an airline company. You are probably aware of a number of possible risks to an airline: natural disasters, plane crashes, or spikes in fuel prices, to name a few. These are your known unknowns.

Now imagine what happens to your investment if you buy airline stocks and the next day a scientist announces that they’ve built a teleporter that can safely and instantaneously transport people across the globe. Nobody could have foreseen such an outlandish invention—it would be something straight out of science fiction. This would be an unknown unknown, a risk that is so far off your radar you probably would not even think it was worth thinking about.

And you may be right. These risks are by nature rare and unpredictable, so it is practically impossible to plan around them. But it is important to remember that they can and do happen, and to be ready for the possibility. There was a point when heavier-than-air flying machines seemed like an impractical fantasy. Those who bet against the airplane wound up paying for it eventually.

Today, investors and advisor representatives have a wide range of tools to try to quantify the risks of a portfolio. These forecasts are only as good as the models behind them, though—they can only estimate based on the known unknowns, not the unknown unknowns. There is certainly some value in statistical risk analysis, but there is also a real danger in false confidence.

As humans we are pretty bad at understanding probability: a 5-10% chance sounds pretty unlikely, but in practice a 1 in 20 chance is not nearly as rare as we think it is. When we hear numbers like 95% we tend to think of them as being a safe bet. That’s not much comfort if you turn out to be the 1 in 20, though.

Here at Leibman Financial, we have a different approach to risk analysis. It goes something like this:

Everything we invest in has risks. Many of the investments we prefer are more volatile than average. You may lose money.

We do not make these statements because we are fishing for excuses. We are proud of our results and stand behind them. We want you to continue to do business with us, and believe the best way to ensure this happens is to make money for you.

We like to think we do a pretty good job. But we cannot guarantee our results, and we will not inspire false confidence by guessing numbers for you. If you have any concerns about investment risks, feel free to call or email us and we will discuss them to the full extent of our knowledge and understanding.

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.

The opinions expressed in this material do not necessarily reflect the views of LPL Financial.

Stock investing involves risk including loss of principal.