What can investors learn from the world’s greatest living explorer? In this guest blog for IFA Magazine, Edward Kennedy, Head of Marlborough’s Personal Portfolio Service, explores how Sir Ranulph Fiennes’ brush with disaster on the ice reveals the difference between bad luck, bad preparation as well as bad decisions.
Risk is ever-present
Sir Ranulph Fiennes once gave a genuinely riveting speech at an investment conference. The subject: risk.
The man routinely described as the world’s greatest living explorer recounted the harrowing story of his 2000 bid to walk alone to the North Pole. The expedition failed after the sled he was hauling suddenly plummeted through thin ice.
The cost of a single bad decision
Sir Ranulph had just seconds to make a crucial choice as his equipment disappeared from view: let everything sink without trace or plunge his hands into freezing water and try to recover the kit he needed to have any hope of staying alive. He opted for the latter course of action.
Although he saved his gear, he suffered severe frostbite in his left hand. The pain later became so unbearable that, back home, he retreated to his shed and cut off the affected fingertips with an electric saw. But at least he survived.
Preparation matters more than courage
Investors might derive all kinds of lessons from this salutary tale. On balance, though, I think the most important message relates to decision-making.
By his own admission, Sir Ranulph made a bad decision – not at the instant when he resolved to retrieve his supplies but a few moments earlier, when he chose a path across the ice. He should have taken the time to find a safer route.
Without wishing to question his extraordinary heroism, we might even say he made a bad decision in undertaking the challenge in the first place. All things considered, the odds were heavily stacked against him.
When risks become impossible to manage
Naturally, he knew he would face danger. He recognised there were many things that could go wrong during a solo trek of almost 500 miles across some of the harshest terrain on the planet. He did everything he could to anticipate the problems he might encounter.
Yet in the end he put himself in a position where good decisions, in effect, were impossible. His best option was merely the “least worst”. Ultimately, the level of risk involved was too high even for him. As he confessed many years later: “I wouldn’t make the same mistake again.”
Investing should never be a polar expedition
Of course, with precious few exceptions, investing shouldn’t be as hazardous as an unsupported march to the North Pole. Yet we all know a life-long financial journey is unlikely to be blessedly uneventful and super-smooth.
In most instances, thankfully, unwelcome twists and turns can be addressed with relative ease. Perhaps the most obvious illustration is the regular rebalancing of portfolios amid everyday market volatility.
Why risk profiling is a vital defence
Other issues may be tougher to tackle. If a particular holding is conspicuously underperforming, for example, finding a suitable replacement might take time and effort. Nonetheless, a solution can usually be identified and implemented.
The real trouble comes when there’s no solution at all. This tends to happen when investors get themselves into situations in which they have zero room for manoeuvre and so need everything to go right.
We’re all familiar with the classic potential pitfalls. They include lack of diversification, too much illiquidity and knee-jerk attempts to time the market. In the spirit of Sir Ranulph’s misadventure, all entail excessive risk.
Risk profiling continues to serve as a vital defence against such perils. It encourages good decisions. Especially against today’s uncertain backdrop, it’s imperative that this practice keeps evolving and improving – and that advisers and clients alike make optimum use of it.
Making sure clients have real choice
Marlborough’s own range of risk-graded MPS portfolios targets seven levels of risk and return. Each portfolio also offers a selection of underlying investments. This allows a significant proportion of investors to find a strategy that suits their preferences and needs.
Yet even an array of this breadth and depth can’t satisfy everyone. Some individuals have requirements that can truly be met only through a more personalised strategy, while others may wish to shift to such an approach over time. We’re increasingly seeing this in demand for our bespoke services.
It’s therefore essential that clients are made aware of all the choices available to them. They need to understand the full extent of the opportunities they have to minimise and mitigate investment risk – because the fact is that providers are adding to those opportunities all the time.
Preparedness is the real safeguard
This is how investment managers and advisers alike can help clients prepare for almost every eventuality. It’s how we can strive to spare them the investment equivalent of staggering across thin ice, scrabbling around in freezing water or quietly heading up the garden to chop off their disfigured digits.
Remember: it’s inevitable that things will go wrong. What matters is whether we’re ready to cope. As Sir Ranulph famously remarked: “There is no bad weather – only inappropriate clothing.”
