A Deep Dive on Contingency Plans

Until I read the book Shadow Divers: The True Story of Two Americans Who Risked Everything to Solve One of the Last Mysteries of World War II I didn’t really know much about scuba diving. Sure, I tried it once in Mexico, but that was maybe 25-30 feet of water.

The book tells an amazing story about a group of deep sea divers who discovered a previously unknown German U-boat submarine that was sunk off the coast of New Jersey in WWII (can you believe they came that close?!). It’s one of the best stories I’ve read in a while.

I never realized just how dangerous deep sea scuba diving really is. At a depth of 200 feet or so the currents can sweep you miles away from your boat. Visibility can be virtually non-existent. The amount of pressure at that level basically makes you intoxicated and can lead to hallucinations. There are seemingly hundreds of things that can go wrong — come up too fast and you could die from decompression issues; lose your way and run out of air; get your equipment caught on some wires and you could be stuck for good; get panic-induced narcosis from the build-up of nitrogen in your bloodstream and you could die in the water or a host of other problems.

So those divers who are the best in the world have to have plans upon plans and contingencies on every possible outcome to succeed when searching through these dangerous wrecks. The entire diving process is basically one big contingency plan:

An excellent diver boards the boat with a plan. For days, maybe weeks before the trip, he contemplates the wreck, studies its deck plans, memorizes its contours, decides on a work area, sets reasonable goals, then constructs a strategy to accomplish those goals. He believes that navigation is the key to safety and success aboard a wreck, and he is unwilling to dig willy-nilly, as do so many wreck divers, in blind hope of finding a prize. He has seen guys who do that, and some of those guys never came up. A well-conceived plan is his religion. Days in advance, he knows what he is supposed to do and where he is supposed to go, and for that reason he will adapt to contingencies; and in the deep Atlantic everything is contingency.

John Chatterton was the diver who ultimately discovered the identity of the wreck after years of searching when other divers had all but given up. There were other divers who had similar experience, but none spent as much of their time planning out their dives in advance. Every dive had a game plan with sometimes months of preparation and research.

Before trying to locate artifacts from the subs or ships he was diving he would plan out his course of action, even going so far as to video-tape the rooms on a dry run before truly exploring them. He ended up discovering a number of different wrecks all around the world and became known as one of the best divers on the planet.

Preparation was the key to his success and even when things went wrong he would immediately slow things down in his own mind to make sure he didn’t lose control and panic like so many others have done in similar situations.

There are plenty of investing parallels to draw from this story, but the preparation and contingency planning ahead of time is what I found so useful. No one really ever knows what’s going to happen in the markets. There’s always the potential for something to go wrong.

Buffett once said, “Risk comes from not knowing what you’re doing.” I think it’s also true that risk comes from not knowing what you’re going to do. You’ll never be able to make the perfect move at the perfect time, but simply having a plan in place, with contingencies for when things go wrong, can be a huge advantage. So many investors had no plan for the crash in 2007-2009 nor the recovery since then and there have been costly mistakes in both directions.

You can gain some very welcomed peace of mind when you implement something of an if/then investment process that will guide your actions no matter what the market does. You can’t expect miracles but going through some contingencies about how you’ll react when (a), (b) or unknown (c) occurs should lower your odds of panicking at the wrong time. That’s the about the best you can hope for in an uncertain future.

Things feel pretty good right now. Stocks are at all-time highs despite all of the continued worries and problems in the world. Bond returns have continued to defy expectations. Even commodities have joined the party this year. Brexit now seems like a distant memory. Portfolio values should be looking pretty good these days.

This is when you need to make sure you know what you’ll do if something doesn’t go as planned. You never want to get yourself into a situation where you’re trying to figure out what to do on the fly when volatility spikes and emotions run high.

You can’t predict what the markets will do, but you can prepare for what actions you will or won’t take during various market scenarios.

Shadow Divers

Further Reading:
A Portfolio Pre-Mortem

Now here’s the stuff I’ve been reading lately:


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