In the depths of addiction nothing else matters.
The pursuit is focused, relentless and uncompromising – dismissive of any potential consequences. So what happens when the addiction is to risk?
I learnt about the nature of addiction to risk from the experience of my family. I have witnessed the recklessness and the consequences of loss. This has shaped me as an investor.
When one of my friends returned from her Oxbridge interview, she regaled us with a question she had been asked: “Should animals have wheels?” Her response: “Only if they have brakes.”
Of course, it is worth being mindful of the folklore which surrounds this tradition – questions and answers seem to get whackier and wittier with each passing year and prospective undergraduates have a habit of retrospectively leaving out their ‘umms and ahhs’.
Embellished or not, it has stuck with me for over 20 years. Not only for my friend’s scintillating response, but for how it resonates with the world of investing and the concept of risk and return.
Today, investors can travel as fast as they want provided they have sufficient risk processes. The trouble is, this is often a false comfort. In one of the early chapters of his book, The Armchair Economist, Steven E Landsburg asks: “Why are seatbelts so deadly?” His hypothesis is that drivers feel safer if they are wearing a seatbelt, so they drive faster and more dangerously. For the investment analogy, replace the sources of false comfort – the seatbelts – with zero-interest rates and volatility targeting.
Landsburg’s tongue-in-cheek solution? We should drive around with a gigantic spike mounted on the steering wheel pointed at our chests. We might not get anywhere very quickly, but there would be far fewer deaths.
The risk I will never take
From an early age, the concept of the spike has weighed heavily on me. One of my earliest memories is of walking up the drive of our family home in Fulmer in Buckinghamshire. My cousin asked what the sign at the front of the house meant.
At the time, all I knew was that we had run out of money and we needed to move out. The house was being repossessed.
I have always been clear with myself, as has my cousin with herself: I would not risk ending up like my father. No risk was worth taking at the cost of losing everything.
A success and an addict
In the tradition of many Jewish immigrants, my father was in the clothing business (as was his father) and he had been remarkably successful. After leaving school at 15, he grew a business selling cheap clothes for women. He was close friends with, and a competitor of, Philip Green of Topshop fame. He was equally flash too – aged 25, he drove a gold Rolls-Royce. At its peak, the business ran more than 20 shops across south-east England.
