I just couldn’t bring myself to write about another volatile day.
Yes, the S&P dropped ~3.5% to 5,268. Yes, the CPI report came in weaker than expected. And yes, the 30-year Treasury auction was strong. The 10Y yield settled at 4.35%, and the 2Y at 3.82%.
But rather than dwell on the usual headlines, I’d rather focus on something that doesn’t expire faster than a Bloomberg notification—something timeless. Dare I say, something wise.
The Coachman of the Virtues
Let’s talk about prudence. Not the same thing as caution. Prudence is a cardinal virtue—literally a hinge that other virtues swing on. It’s been dubbed “the coachman of the virtues,” and for good reason.
Prudence isn’t passivity. It’s a creative, thoughtful, grounded process of decision-making. It’s how we act with both intelligence and freedom. The prudent person can see the angles, seeks counsel, avoid being swept up in emotion, and gradually moves toward the good—even if the path isn’t linear.
The prudent person knows what they want, understands tradeoffs, and avoids self-inflicted disasters. Not a bad role model when markets are spinning like a roulette wheel.
Timeless Tools for Volatile Times
Prudence is more timeless than anything I’ve ever written, but to recap a few messages we’ve talked about multiple times this year - areas of “timeless wisdom” that might help you weather extreme market volatility:
Acknowledge uncertainty: Recognize that predicting short-term market movements is often impossible.
Maintain a long-term perspective: Focus on your long-term financial goals and avoid making rash decisions based on short-term noise. Real goals aren’t met on a single day’s returns.
Practice patience: Resist the urge to constantly trade or react to market fluctuations.
Focus on underlying value: Remember that you are investing in businesses, and their long-term earnings potential is what ultimately matters.
Manage risk: Be mindful of leverage and understand your risk tolerance.
Be aware of emotional biases: Avoid making decisions based on fear or greed.
Think beyond immediate reactions: Consider the second-order effects of market events. Reaction is easy. Reflection is wiser.
The Secret to Risk Management? Look in the Mirror
The best-kept secret of good risk management? It’s mostly about managing ourselves.
John Coleman wrote it well:
“It’s about managing our ego, our arrogance, our stubbornness, our mistakes. It is not about fancy quantitative techniques but about making good decisions in the face of uncertainty, scanty information, and competing demands.”
Risk management isn’t a spreadsheet problem. It’s a human one.
Coleman references a fantastic passage from Staying Alive in Avalanche Terrain by Bruce Tremper, in a chapter aptly named “The Human Factor”:
“There are two kinds of avalanche accidents. First, an estimated two-thirds of fatalities are caused by simple ignorance... The second kind of accident... is when the victim(s) knew about the hazard but proceeded anyway... Smart people regularly do stupid things.” (p. 279)
Sound familiar? Replace avalanche with some asset class and you’ve got most of financial history.
Want To Get Smarter? Study Stupidity
The good news is we’re not doomed to repeat the same mistakes—if we’re willing to learn.
There’s real value in studying past financial disasters, in listening to the stories markets have already told us. History doesn’t just rhyme—it sometimes yells warnings we’d be wise to hear.
Risk Management Isn’t Just Playing Defense
The second secret of risk management is this: it’s not just about limiting the downside—it’s also about positioning yourself to capitalize on the upside.
We can’t control everything. But we can control our exposure, manage unwanted risks, and stay away from excessive caution. We can tilt toward opportunity, when the odds are good and the crowd is panicking.
Final Thought (and a Toast)
None of this is a recommendation. I don’t know what you should do today. I really don’t.
This is just food for thought while your drink is getting tariffed.
XTODs:
XTOD: “Rare, ugly and worrying”. That is how Krishna Guha, vice-chair at Evercore ISI, described the market moves today. In the last 30 yrs he said there are only four other times that the U.S dollar index depreciated more than 1.5% with the yield on 30-yr Treasuries up more than 10bps.
XTOD: Usually when gold moves like this, the BIS steps in to slam it. This time, they aren't even bothering
XTOD: Ignoring the change in stock prices is there an industry group that has experienced an improvement in fundamentals since the January earnings season?
XTOD: Culture is what you allow. Mike Vrabel setting the tone on day 1. The little things matter.
Culture WINS
https://x.com/colbyLsmith/status/1910423941904056774
https://x.com/zerohedge/status/1910468266465669492
https://x.com/dampedspring/status/1910465881823420822
https://x.com/gb1121/status/1910139766885990749
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