How to prepare for the Wolf

After a decade of fiscal and monetary incompetence, the wolf may be approaching your house. Is there a way to prepare for the wolf without panicking and selling all stocks and risk assets? Yes.


I continue to believe that a fiscal crisis larger than the 1930s is coming. Accordingly, I am short stock and have most of my assets in Treasury bills - (click here to see my current portfolio). 

What should you do if you have a lot of money invested in stocks and are losing huge amounts of cash? Should you immediately join me in the financial bomb shelter of Treasury bills and shorting stocks? 

For most people the answer is no, for emotional not financial reasons. Emotions are central to investing - for better and worse. 

Markets go up and down with violence. Making a huge reallocation is very tough emotionally. Imagine that you sell all your stocks and the next day Jay Powell decides to restart the money printing? Stocks will soar, and you will be sad. 

Here are two behavioral finance tips to adjust your portfolio today without excessive emotional pain.

1. Sell something now. For example, sell 10% of your stocks now (Dow current level 32,400). Sell a small enough amount that if the market soars, you will not be too depressed. 

You are only allowed, in my version of the rules, to sell more if the stock market goes down further, thus validating your decision to sell.

2. Use some rule or randomization to pick the stocks to sell. If you don't directly choose the stocks that you sell, you will not hate yourself as much if they rally. 

For example, if you hold stocks in a taxable account, you can sell those with the largest % loss. If you hold stocks in a non-taxable account, you can pick the ones to sell by coin flip or virtual dart throws.   


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