BMWs and the Black Swan

I’ve marveled occasionally over the past few years at the explosion of wealth in this country, and the totem for these reflections is the BMW.

I lived in Louisville during the ’70s, and BMWs were all but unknown. The only BMW dealer was a small garage well out of town in a hamlet on the Ohio River. People who drove Beemers were enthusiasts who prized them as high-performance machinery.

Now, I commented to my friend Saul the other night, BMWs are status symbols and as common as Hondas.  “There’s a lot of money in this town!” I said.

“It’s not money,” he said  solemnly.  “It’s credit. They’re doing it on credit.”

“And there’s nothing behind it?”

He nodded.

It’s a Fist-Fight

Saul’s a money guy, a passionate student of the markets and trends who worked for Merrill Lynch before starting a hedge fund with a couple of friends. He knows economic history the way the geeks on Sports Center know baseball statistics.

“This whole thing,” he said, referring to the financial world that is in such upheaval, “is a contest, and I’m a game-player in the contest. There are thousands of books about it and all these theories, but no one has the answer. They tell you it’s an intellectual pursuit, but that’s bunk. It’s a fist-fight, and the best advice I’ve ever seen is ‘cover your chin and jab on the run.'”


“Don’t lose money. Cut your losses as soon as you recognize them. Don’t let it be a long-term investment.”

That, he said, is an old money-management technique that has been ignored in this “new age” economy where “everyone thinks it’s riskless.” Federal guarantees, greed and foolishness, he said, led to easy credit for individuals and institutions, and a bloated economy.

A House of Cards

Saul was so baffled by what was going on that he moved all his fund’s assets into cash, certificates of deposit and gold a few months ago. Nevertheless, he is still rattled by the crisis.

“It was a house of cards,” Saul said, “there was nothing behind it. I feel sorry for people who  thought they had investments, and now the outlier (the extreme of a bell curve, a statistical form that measures probability) comes along to destroy their wealth.

‘It’s the rare event, the fifth standard deviation, the black swan. It’s the unanticipated event that comes along every 100 years.”

Saul was taking it so personally that it reminded me of the winter of 1992-3. I had just moved to a small town in northwestern Connecticut. My wife and I decided to divorce, and I was living alone in a big, cold house with baseboard electric heat that was scandalously expensive. I didn’t have a job, my savings were gone and my checking account was at an all-time low. Then I got a utilities bill for $575.

An Exploded Balloon

I spent an hour raging, cursing my fate, and entertaining vivid scenarios of my life as a homeless person. Finally, I sat down and started writing. Every thought that crossed my mind, no matter how foolish, I committed to a yellow legal pad.  I wrote for an hour or more, ten pages in all, emptying myself in blue ink.

When there was nothing left, I sat for a moment, incredulous. Then I laughed. The fears that were running me were not mine at all. They were my mother’s, who came by them honestly. She grew up during the Depression with an alcoholic father.

I glanced out the window at the garage. I had a nice car in that garage with gas in it. I had food in the kitchen, a roof over my head. I was warm and dry, and I had a comfortable place to sleep.  Whatever was going to happen, no one was going to come to the door and shoot me. I’d be OK.

A Baseball

I put on my coat, called the dog, and went for a walk. Up the road, I passed a spot where a car had been parked. Lying next to the snowbank was a scuffed, grass-stained baseball. Spring was coming; I’d be OK.

A few days later, I got a check for a magazine story I’d written. I expected $500; the check was for $3500.

I wish I could say the experienced changed me, but my first reaction to upsetting news still tends to be negative and fearful. I’ve had my own “rare event,” and it laid me low. But the truth is that even though I’ve been brought to my knees, the reality was never as bad as my fears portrayed them. I was — and still am — OK.

And if my experience has any value, what we’re going through now may get ugly, but we’ll be OK.

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