As a boy I recall gazing up at one of the many strategically-placed air raid sirens that dotted North Vancouver, and many other cities. The siren was placed atop a metal pole, some 30 feet high, and stood ready to howl out its warning to all within earshot. I had heard it faintly from home before, but as I gawked directly at it that day, the test siren sounded off, nearly deafening me with its shrill proclamation. The siren was a necessary but sickening sound. Its haunting distress signal chilled the air with an ominous reminder of the potentially-imminent nuclear threat which hung over our youth like a constantly pending funeral.
About thirty years later I sat breathless, speechless in my boss's office. Our weekly Provincial Risk Management conference call was being conducted as if nothing had just happened during the two hours leading up to it. The Vice President had a few business matters he wanted to cover, and he did so with his usual professionalism.
Arriving just in time for the call, the three of us Prince George risk managers hadn't yet had a chance to debrief the horrific state of events unfolding that morning. We sat wide-eyed and fidgety, listening, but making little effort to feign interest in the benign business seeping out of the speakerphone like institutional fog.
Toward the end of the conference call the VP's voice softened and his tone became genuine, soothing. He paused, and in earnest compassion, turned the discussion around to that which was on everyone's mind.
He said his heart was filled with anguish for the families of those workers who were victims of the attacks in New York City earlier that morning. He added that there were some legitimate fears that the RBC complex in Toronto was also a target, and the buildings had been evacuated for the day. Since many of us worked in similar high-profile facilities, which could also be targets, we were free to go home and be with our families if we so chose.
We all stayed at work. It seemed unlikely that Prince George was a serious target for anyone wanting to make a statement.
The events of September 11, 2001 forever established a hitherto relatively obscure term into the financial psyche: "Event Risk."
Event risk is simply the risk that some unexpected external event will cause a substantial decline in the market value of an asset. The events of 9-11 were a textbook case, wreaking havoc on the values of US air carriers, which were already in trouble at the time. Stock markets were closed for several days and some shareholders of major airlines lost between 40% and 50% of their value that week.
Planning for the unexpected:
We can't eliminate every risk, but we can take measures to reduce the aftermath of uncontrollable events by keeping in mind a few fundamentals.
At Work: Your business should have an emergency contact system in the event of an after-hours crisis which requires the attention of key employees. This should form part of a well-rehearsed emergency plan.
Family and Business Finances:
Keep enough cash or cash-like resources available to sustain your family or business for 3-6 months.
Buy insurance.
Reduce your debt level whenever you get the chance. Assets can lose their value in a crisis, but debt is more stubborn, and will keep accruing interest regardless of external events.
During a crisis there is usually a flight of capital from risky assets to safe havens. Ensure that a portion of your portfolio will benefit from this to help offset the impacts of an unexpected event. Take a balanced approach. In today's markets, many safe haven assets have already benefitted from this "risk off" trade. Loading up too heavily on these could be counter-productive if markets regain sustained confidence.
At Home:
Keep your crucial documents in a fireproof safe or in a deposit box at a bank. It wouldn't hurt to have a few dollars cash stored there as well.
Have a pre-determined meeting place in the event of a loss of telephone service.
Know where your family photographs are and make sure you can access them quickly. If they are in electronic format, back them up and store them separately. These may be among your greatest treasures.
Sleep Well at Night
I am actually optimistic about the future. This is not a cry from the wilderness to take shelter from an impeding disaster. Instead, just consider it a practical reminder to be prepared. Should storms blow in, it is comforting to know you have done what you can to be ready.
Mark Ryan is an advisor with RBC Wealth Management, Dominion Securities (member CIPF) and can be reached at [email protected].
