The Invisibility of Managing Risk

My wife called crying on facetime. She was living like a refugee back in the U.S. with Marco after being ripped out of her life with 24 hour’s notice. She was still getting notifications on her phone anytime we were sending out drone or missile alerts. Worried about me here all alone, she had dreamed I’d been killed. Through the sobs she exclaimed, “And I don’t even know how to pay the mortgage!”

I started laughing which made her stop crying and then she was laughing while saying but no, I really don’t.

Thinking about that conversation the last few weeks I am going to simplify things for her. We have the box of important papers. I have friends that are more like brothers that would help her with the crypto. That is the deal, if something happens to them, I help their wives. For the mortgage she would just need to call our banker. I know she doesn’t remember where the master password is for the password vault that has the accounts and instructions. I’m going to try and periodically quiz her when we’re back together. I have to make it a fun game otherwise she won’t want to do it since it will make her sad.

This leaves only the investments themselves. She has no idea what we own or why we own them. I’ve worked on thinking through how to simplify this. Will have one account where she can sell the rest and consolidate into that account. It is a simple ETF portfolio that will do well across most monetary regimes besides sustained deflation so all she has to do is rebalance once a year. 

For deflation that will be covered by our house being fully paid off to start. I made sure my life insurance has more than enough to pay the remaining mortgage. She will also have the survivor benefit, healthcare, and rent the loft in the house to traveling nurses for income. The main investment account would cover the other monetary regimes adequately, plus all the crypto if she wanted to sell that. She wouldn’t have to work unless she wanted to.   

Fast forward two weeks and no sooner had the ceasefire been announced than people were saying how thrilled they were at the news, immediately forgetting missiles and drones had been hitting the day before. People’s sole focus was returning to normal operations as quickly as possible, forgetting the war even happened. Many are unwilling to even entertain the possibility that hostilities could continue despite that being a real risk. They get mad at the thought. For those of us who have deep experience managing risks in war and conflict zones, it is fascinating to watch the mental gymnastics people do to get to the conclusion they want of everything is fine, life is back to normal, while ignoring the reality around them.

Personally I continue to hold a large position in SGOV and believe not all jurisdictions will be equal coming out of this as the world breaks back into blocs, this time apparently between dollar, yuan, and the new third world of non-aligned states that will try to play both sides. I don’t understand how the world can be short over 10 million barrels a day of oil, with the LNG picture even bleaker and no one seems to care.

I continue to expect a long summer. Also I am not fooled with the blockading a blockade talk no matter how many times the Treasury Secretary says Iran oil is about to shut in. The more he talks the more desperate he sounds. Stop talking about it and be about it. The blockade does not restore commercial shipping. That is the only point. The world cannot ignore global trade not being restored like the world ignored the U.S. not beating the Houthis in the Red Sea.

None of us on the ground know what is going on. Strategic ambiguity or being blindsided, the result is the same. Paralysis and fatigue. The U.S. is applying Economic Fury hoping blockading the blockade works before the global economy screams for relief. Simultaneously, the U.S. is depending on the Iranians to hold to the ceasefire and not fire on U.S. assets that were sent into the strait of Hormuz. It is embarrassing to watch the U.S. need honor from the Iranians for things to not go wrong while bragging about giving them no quarter.

The U.S. is in the strait, but no one says where in the strait, what assets were sent into Hormuz, the limits of what they can technically accomplish, or the high risk of friendly fire amongst all the armed assets in the area that don’t speak the same language while all are worried about being targeted themselves.

Managing real risks is not for everyone. Last week I had a gentleman shout at me that only 13 people died in missile strikes last month, less than the number of people that died in their bathtub, and he couldn’t believe I was denying his request. This war is showing how singularly focused people are on their own comfort. Not even people dying in missile and drone hits will make them contemplate, for a moment, that it could be them. People are terrible at understanding they do not get the average result.

As Taleb says in Fooled by Randomness, the risk manager will be blamed if something goes wrong, because the disaster was not prevented, and despised if everything goes well, because his or her work increases costs but seemingly delivers no benefits.

Thinking about all this over the rumble of my diesel land cruiser driving home the other night, perhaps it is part of human nature to not value risk management because we can’t measure it. If we manage real risks correctly and nothing bad happens, the benefit is invisible. We have loved stories since our ancestors drew on cave walls. There is no story in managing risks. Nothing bad happened, the end. If nothing bad happens, you can’t face overwhelming odds, overcome adversity, become the hero, and win.

This war is showing me that valuing what you have, enjoying a quiet life, managing real risks and having reserves so nothing bad happens and you can protect your family is very much a survivor sport. We seem almost hard wired to only value these things after a close brush with death, ruin, or if we are responsible for others and take our duties seriously. Being responsible, managing our own affairs, and not feeling threatened when we see someone doing better than us is an elite pursuit. Those of us who can do that will always have opportunities in volatility since most are never content with enough and risk too much.

While I am describing what I am seeing at the ground level, Anthony Deden recently wrote about this more eloquently at a systemic level recently. If you read one piece this month, make it this one. I make no apologies for quoting so much from it below.

Democracy and the Consumptions of its Foundations

In my view, what seems to be unfolding is not merely a string of policy errors but something closer to a structural transformation. Democratic forms are preserved and popular sovereignty is invoked even as real sovereignty erodes. Moreover, the language of rights endures even as rights themselves become conditional, revocable, and subject to administrative discretion. Western societies behave as though they remain democratic, even as their institutional and moral architecture is gradually being dismantled in plain sight. What is emerging is not straightforward authoritarianism or neo-totalitarianism. It is a gradual reorientation of democratic politics away from restraint and toward the consumption of capital, institutional credibility, and social trust. Democratic legitimacy is increasingly used not to preserve limits, but to override them. Furthermore, policies once treated as exceptional, such as monetary debasement, emergency governance, retroactive regulation, and speech controls, increasingly appear as permanent features of modern political life.

democratic states can appear stable even as their underlying capital—physical, institutional, and moral—erodes. Infrastructure deteriorates while spending grows. Bureaucracies expand as competence declines. Entitlements multiply as demographic foundations weaken. The system survives by drawing down reserves built under earlier, more restrained regimes.

As elected officials lose the capacity—or the will—to enforce discipline, responsibility shifts to bureaucratic bodies shielded from direct accountability. Democratic legitimacy remains visible, but many real decisions are made through opaque procedures, technical mandates, and emergency powers. Citizens may come to experience governance as coercive yet impersonal—everywhere present, but difficult to challenge or influence.

Monetary credibility survives longer than expected. Social trust decays slowly. These lags create the illusion of sustainability, encouraging further consumption. Yet this depletion is cumulative. Each generation inherits less margin for error. Each crisis justifies greater intervention, and each intervention weakens the conditions for recovery. What looks like resilience is often inertia: the delayed effect of past discipline. Democracy, in this form, no longer governs the future. It discounts it. And what is discounted is eventually spent.

Global capital mobility, technological deflationary pressures, and the creativity of private actors can for long periods outrun political extraction. Past accumulations of institutional and economic capital provide real buffers and help explain much of the continued dynamism we observe. But resilience is not the same as immunity. A society may continue to innovate even as its fiscal, monetary, and administrative foundations grow more fragile. Nominal growth can coexist with rising debt, just as technological progress can unfold alongside declining institutional trust. Market pricing can continue to function within expanding regulatory frameworks, until the freedom to allocate capital according to price signals is materially constrained. Signs of this constraint are already visible. In the end, adaptation can offset incentives; it does not abolish them. The question, therefore, is not whether prosperity persists. It does. The question is whether the margin for error is widening or narrowing.

Plato did not expect regimes to perfect themselves. He expected prudent individuals to adapt: to preserve independence where possible, to defend property as a condition of freedom, and to maintain long horizons under short-term rule. Collapse, in this sense, is not an end but a narrowing of illusions, guarantees, and collective promises. What remains is judgment, restraint, and the quiet work of endurance within imperfect orders.

History offers no assurance that democratic societies will rediscover their limits in time. But it offers something more durable: the knowledge that freedom has never depended primarily on political salvation, but on the capacity of individuals and communities to preserve capital—material, moral, and institutional—when the political institutions forget how. (emphasis mine) History is clear about what follows when democratic custodianship collapses. In Athens, the erosion of restraint gave way not to renewal but to imperial overreach, factionalism, and eventual subjugation, first to the Spartan oligarchy of the Thirty Tyrants and ultimately to the Macedonians. In the Roman Republic, the hollowing of republican institutions did not restore balance; it ended in personal rule, permanent emergency, and empire.

On a personal level, my answer to this is I don’t plan on retiring. I will write more on this in the future. For now I want to focus more on the question of whether the margin for error is widening or narrowing by looking at current events.