Insights

“What were they thinking?”

Laurence Gonzales in Deep Survival suggests that, in the aftermath of accidents where all kind warning signs were already in place and yet the protagonists ignored them, the question to ask isn’t ‘Why did they do it?’. Instead, the correct question to ask is ‘What were they thinking?’.

The story of the accident at Illinois River in March 1998 is highly instructive of financial market environment. The river has thirty-five miles of class III to IV rapids with a class V gorge in the middle. On that day, the river’s flow was 2,000 cubic feet a second; suitable for most paddlers. Shortly after Gary Hough, one of the protagonists of the story, and his party, set out, it began to rain. Gary Hough did the right thing. He ordered the craft pulled out and had his group camp. Not much the kind of fun the group had planned.

Between March 21 and 23, 3 inches of warm rain fell, melting snow in the Siskiyou Mountains. The river rose 15 feet and the flow eventually reached 20,000 cubic feet a second. The river had clearly turned extremely dangerous and was powerful enough to uproot 18-inch diameter trees which were flowing down the river at 15 miles an hour. Yet, not everyone sat out.

That day, the river claimed the lives of two rafters and ten had to be rescued by the Coast Guard rescue helicopters. As Mr Gonzales surmises, ‘It is unlikely that professional guides would intentionally take such a risky run. …. They had a lot of experience at running the river, and it had always been okay.’ Their emotional systems were likely in play. The swell of the river likely equated to a swell of fun. It didn’t end that way as the river claimed the lives of two guides.

As Hough later said of the sound of the river, “Anybody who’s paid attention to a flooding river will know it. There’s the roar of the full-throated river, but on top of that, …., there’s the hiss. That hiss basically says, ‘Keep your distance.’”

As we look at the current investment environment, we find that a significant portion of the market comes with that hissing sound. Accordingly, we keep our distance and continue to set our camp far away from the overflowing river of speculation. Indeed, for much of the past few years, we haven’t participated in the wider swath of the markets. Instead, we have taken our boat to an entirely different river, one that offers far fewer thrills.