Deep Risk in the United States of America

I learned more important life skills playing sports growing up than I ever learned in the classroom.

Playing sports taught me about the importance of discipline, practice, hard work, teamwork and how to lose the right way.

That last lesson didn’t come easy.

The only times my dad would ever get after me when it came to sports were for ball security in football (don’t fumble), making my free throws in basketball (take your time, bend your knees and follow through) and good sportsmanship in all matters.

That’s it.

There’s only one time in my entire playing days I can remember my dad getting angry with me. And it had nothing to do with how I played.

It was my first 3-on-3 Gus Macker basketball tournament. I must have been in 3rd or 4th grade. It was a double-elimination tournament so after the second loss, you’re out. After losing our second game and getting knocked out, I stormed off the court without shaking the other team’s hands.

I immediately got an earful from my father and was told in no uncertain terms to find each of the players on the other team, shake their hands, tell them good game and wish them good luck in the rest of the tournament.

This one has always stuck with me for some reason.

Everyone loses eventually. Everyone fails.

How you handle yourself in those situations says a lot more about your character than how you handle winning because winning is much easier to handle than losing.


One of my favorite descriptions of risk in the financial markets comes from William Bernstein in his book, Deep Risk: How History Informs Portfolio Design:

Risk, then, comes in two flavors: “shallow risk,” a loss of real capital that recovers relatively quickly, say within several years; and “deep risk,” a permanent loss of real capital. Put into different words, shallow risk, if handled properly, deprives you only of sleep for a while; deep risk deprives you of sustenance.

A few weeks after Trump was inaugurated in early 2017, I wrote a piece called Deep Risk Under President Trump. This was my conclusion:

Let’s hope shallow risk — run-of-the-mill market volatility — is the only thing we have to worry about over the next four years. But with Trump threatening countries, companies, regulations and industries, it’s worth understanding what could happen if we do experience deep risk within our financial markets.

It turns out it wasn’t the markets where deep risk resided. Markets have done just fine throughout this entire ordeal. Investors have learned to live with geopolitical risk. Markets don’t care about politics.

The real deep risk came to fruition in our democracy and the trust and faith in our government institutions.

While the stock market continues to hit new highs, our political sphere is in the midst of a great depression.

The first time I became truly terrified of this deep risk came from a Vanity Fair article by Michael Lewis in the fall of 2017.

This piece would lead to Lewis’s book, The Fifth Risk: Undoing Democracy, which detailed the neglect and mismanagement of government agencies and services by the new administration in 2017. Lewis details four risks of this neglect in the book, leaving the fifth risk open-ended.

That fifth risk is the risk that’s hard to imagine.

No one could have imagined we would experience a global pandemic in 2020.

No one could have imagined the United States would have one of the worst responses to that pandemic.

No one could have imagined the president himself would contract that disease.

No one could have imagined we would have a contested presidential election.

And no one could have imagined that same president would incite mob violence on our own Capitol Building because he refuses to admit he lost fair and square.


We’ve heard from a lot of people who are worried about how our future generations are going to be forced to pay for the government debts of the current generation.

How about our current generation of children and grandchildren who are forced to watch our political “leaders” provide awful examples for how to act?

Politicians who care more about being re-elected than the country they’ve been elected to serve.

Politicians who care more about their own well-being than the well-being of our democracy.

Politicians who care more about their party than the country.

Politicians who will do anything they can to save face when they have clearly lost an election.

As bad as things were in the Capitol Building yesterday, things could have been far worse.

Frankly, I don’t know how this deep risk will manifest itself. I’m an optimistic person and hope things will get better.

Regardless of how things play out from here, yesterday was one of the most embarrassing days in our country’s history.

It was a deep risk I never would have imagined playing out.

Further Reading:
Deep Risk Under President Trump

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