 | | Alan Salzbank, Portfolio Manager |
On March 15th, of the year 44 B.C.E., Julius Caesar was assassinated in the Roman Senate chamber. After years of leading his armies to one victory after another, Caesar had led them across the Rubicon, igniting a civil war that resulted in his being declared dictator. Five years later, he lay dead on the Senate floor, and the Roman Republic was gone forever. Legend has it that when he saw his trusted friend Brutus among the conspirators, he offered no further resistance to his fate, saying only, "Et tu, Brute?" as the Senators fell upon him. How had such an astonishing fall come about?
Given the enormous complexity of Roman politics of the time no one can say for sure, but I cannot help but wonder if too much success was the ultimate culprit. Merely one month before his death Caesar had been appointed dictator for life. Could it be that his outward aura of infallibility blinded him to the very real unresolved political conflicts brewing beneath the surface, making him unable to see the danger until it was too late? What lessons can we draw from the Ides of March?
As a portfolio manager, my key takeaways are: 1. A spectacular rise often precedes a tragic fall, and 2. Risk often hides where we least expect. While I believe that the disciplined hedging of an equity portfolio is the key to long-term success, and evaluate risk and hedging strategies continuously, each March I take the opportunity to assess the performance of the past year and re-evaluate risk management criteria. I ask whether the circumstances have changed, whether the marketplace has grown complacent regarding risk, and whether the portfolio is properly hedged to prosper even if unforeseen dangers should come to the fore. Most importantly, I look to see if there are any "trusted friends" in the stock portfolio ready to turn "Brutus" and undo our hard-won victories. As investors, we must never grow too comfortable with success and relax our vigilance against investment pitfalls. Discipline, diversification and hedging are the keys to turning the dreaded Ides of March into just another day in the markets.
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Risk and The Ides Of March
