Tail End Events Are All That Matter
In investing, the average consequences of risk make up most of the daily news headlines. But the tail-end consequences of risk – like pandemics, and depressions – are what make the pages of history books. They’re all that matter. They’re all you should focus on.
Capital Thinking • Issue #602 • View online
I grew up ski racing in Lake Tahoe. I was on the Squaw Valley Ski Team, and it was the center of my life for over a decade.
At a conference a few months ago I was asked what skiing taught me about investing. This was on stage, where you can’t ponder your answer – you have to blurt out whatever you can think of.
I didn’t think skiing taught me anything about investing. But one incident came to mind.
“Well, let me take this to a dark and tragic place,” I said before telling a group of 500 strangers a story I hadn’t talked about much in almost 20 years.
The Three Sides of Risk
Morgan Housel | The Collaborative Fund Blog:
Ski resorts are good at managing these kinds of conditions to keep people safe.
Few tourists realize it, but if you visit a ski resort in the early morning hours after a blizzard you will hear what sounds like bombs going off. The sound isn’t deceiving.
With a combination of mortars, grenades, and charges dropped from helicopters, ski patrol do controlled blasts of at-risk pitches to intentionally trigger avalanches when the resort is empty, preempting slides before guests arrive (check out some videos).
It’s an effective system, keeping avalanche accidents at major resorts rare.
But if you’re skiing out of bounds – ducking under the DO NOT CROSS ropes to ski the forbidden terrain untouched by masses of Bay Area tourists – the system won’t help you.
Skiing out of bounds is illegal, a form of trespassing. The main reason resorts don’t want you doing it is because it’s dangerous.
Out-of-bounds areas aren’t patrolled, so you’re on your own if you get injured. They usually don’t lead down to a chairlift, so you have to find your own way back up.
And they’re not bombed for avalanche control. So it’s here – out of bounds – that a skier is most likely to discover Mother Nature’s sliding wrath.
On the morning of February 21st, 2001, Brendan, Bryan, and I met in the Squaw Valley Ski Team locker room, like we had hundreds of times before.
Bryan’s mom told me years later that his last words when he left his house that morning were, “Don’t worry, Mom, I won’t ski out of bounds.”
But as soon as we clicked into our skis, that’s what the three of us did.
When an event becomes life-changing, all kinds of mundane details sear into your memory.
Almost 20 years later I remember Brendan duct-taping his ski pants shut on the chairlift because I had broken the side zipper while wearing them the week before.
I remember Bryan cackling with joy as the three of us entered barren wilderness while the rest of the resort was packed with crowds.
And I vividly remember getting hit by one of the only avalanches I’ve ever experienced.
It was tiny, not going over my knees. It wasn’t scary.
I remember laughing.
But the feeling is unforgettable. I didn’t hear or see the slide. I just suddenly realized my skis weren’t on the ground anymore – I was literally floating in a cloud of snow.
You have no control in these situations, because rather than pushing back on the snow to gain traction with your skis, the snow is pushing you. The best you can do is keep your balance to remain upright.
I remember putting my hands up and shouting, “Wahooo” like I was on a roller coaster. I essentially was.
The avalanche ended quickly. Brendan was to my left and Bryan was below us. No one stopped. We just charged to the bottom.
When we got back to Squaw Brendan and Bryan said they wanted to ski the backside again.
I have no recollection of why, or how this came about, but I didn’t want to go.
It may have been the hitchhiking, which I always hated. That, more than the out-of-bounds skiing, felt reckless to me.
But I had an idea.
Brendan and Bryan could ski the backside themselves. Rather than hitchhiking back, I would pick them up in my truck.
Everyone agreed on the plan, which we made in the Wildflour Baking Company cookie shop in the Squaw Valley lodge after lunch. This was before we had cell phones, so syncing on concrete plans ahead of time was important.
Brendan and Bryan walked out and skied off.
Thirty minutes after Brendan and Bryan took the chair up to ski the backside, I drove to the back-country road where I was scheduled to pick them up.
They weren’t there.
I waited another 30 minutes before giving up. It took maybe five minutes to ski the pitch, so I knew they weren’t coming.
It didn’t occur to me that they were in danger. I figured they beat me to the bottom and hitchhiked back.
I drove back to our locker room, expecting to find them. They weren’t there, either. I asked around. No one had seen them.
Around 10 pm I was told to go to the Squaw Valley Fire Department where I met the local search and rescue team. They took it much more seriously.
I explained everything Brendan, Bryan, and I did that day.
The search team pulled out maps, and I showed them exactly where we entered the out-of-bounds area, where we exited, and the path we took. I told them about the small avalanche we were caught in that morning.
As soon as I mentioned it I could see the dots connecting in the rescuers’ heads. These were seasoned professionals who understood the danger of mountains.
When I finished talking I remember two of the rescuers looked at each other and sighed. They knew.
I drove back to the locker room around midnight.
The Squaw Valley parking lot can hold several thousand cars. By this time it was almost empty.
Everyone had gone home, except two cars parked next to each other: Brendan’s Jeep, and Bryan’s Chevy pickup.
I later learned that as soon as the rescue team entered the out-of-bounds point where I told them we skied, they found the fresh scars of a massive avalanche field.
I knew what happened. No one needed to say it.
Search dogs had honed in on a spot in the avalanche field where rescuers with probe poles found Brendan and Bryan buried under six feet of snow.
They were born one day apart, and died 10 feet from each other.
Later that day I drove to see my dad at work. I wanted to be around family.
He met me in the parking lot and said, “I’ve never been so happy to see you.” It was the only time I’ve seen him cry.
It didn’t occur to me until that moment how close I was to going with Brendan and Bryan.
Why did I ski the backside with them once that morning, but then decline a second run?
I’ve thought about it a million times. I have no idea.
Why was the avalanche on our first run a tiny little thrill, but the second run triggered a massive slide that killed two 17-year-olds?
We’ll never know.
The next evening, Tom Brokaw told Brendan and Bryan’s story on the NBC Nightly News.
It was surreal to watch.
We were laughing together 36 hours before. Now their death was national news.
And the only thing that kept me from being a third name in the newscast I had watched religiously was a fluke decision I put no thought into.
It’s been almost 20 years since this happened.
Sometimes I think about everything that’s occurred since – college, marriage, career, kids – and remind myself that I’ve only experienced it because of a blind, thoughtless decision to decline another ski run.
This story isn’t unique.
Many people reading this have had near-death experiences. Most have lost someone dear to them.
And everyone reading this has made what seemed like know-nothing, inconsequential decisions that fundamentally reshaped their lives.
Sometimes those fluke decisions are positive. Sometimes they’re negative. But they’re always out of the blue, unforeseeable.
It’s just how life works.
After I told this story at the conference I had to tie it back to an investing lesson. It was easier than I thought.
My risk tolerance plunged after Brendan and Bryan died.
I broke my back skiing (no nerve damage) a few months later, which crushed it even more. I haven’t skied much since.
Maybe ten times in the last 15 years. If I’m honest, it scares me.
I’ve been risk-averse in other areas of life ever since, too. I drive the speed limit. I obey the seatbelt sign on airplanes. I invest in index funds.
I don’t know if Brendan and Bryan’s death actually affected how I invest. But it opened my eyes to the idea that there are three distinct sides of risk:
- The odds you will get hit.
- The average consequences of getting hit.
- The tail-end consequences of getting hit.
The first two are easy to grasp. It’s the third that’s hardest to learn, and can often only be learned through experience.
We knew we were taking risks when we skied. We knew that going out of bounds was wrong, and that we might get caught.
But at 17 years old we figured the consequences of risk meant our coaches might yell at us. Maybe we’d get our season pass revoked for the year.
Never, not once, did we think we’d pay the ultimate price.
Morgan Housel
We spent the last decade debating whether economic risk meant the Federal Reserve set interest rates at 0.25% or 0.5%.
Then 36 million people lost their jobs in two months because of a virus. It’s absurd.
Tail-end events are all that matter.
Once you experience it, you’ll never think otherwise.
*Featured post photo by Bernard Hermant on Unsplash