Tail risk management

Munger says: "Tell me where I am going to die and I won't go there"

Buffett also continuously assess the odds of Berkshire suffering from a permanent loss of capital event.

The above line seems trivial but beyond it's face value, it's a whole set of risk management philosophy.  A friend sent me a whatsapp telling me about this book "How will you measure your life?"  which prompted me to think a little more about this topic.  The key is to stay in the game and don't hit the ball out of the court.  So how?

It's all about tail risk (events that can impact life in a big way) management in the end the more i think about life, be it finance, work, health, kids, relationship etc.  Always think about what's the worst case (一鋪清袋) events that can possibly happen and how to prevent it?  The difference between this mindset vs 巳人憂天 is there's an action plan about the tail risk event.

Possible tail risk (一鋪清袋) events and prevention measures:

Work - Tarnished reputation; Losing professional qualifications; Violating laws, compliance rules or ethical standards; etc.  Prevention: Honesty and integrity is the best policy here

Finance - Permanent loss of capital in investments (paying way beyond intrinsic value, oversizing,  accounting fraud, technology obsolescence, permanent loss of pricing power, etc).  Prevention: Study and practice Value Investing!

Kids into drugs, gambling, stealing, greed and other temptation, reckless driving, violating the law.  The goal here is the kids will grow to become independent and not a burden to the society. Prevention: Have a good relationship with the kids and the ability to continue to influence them the right way.

Inability to cover big health bills (unless relying on public safety net).  Prevention: Exercise, and sufficient insurance.  

Broken family -  Broken trusts and bad relationships.  Prevention is to avoid (not just resist) bad temptation (君子不立危牆下) and be faithful to your spouse; be aware of the animal spirit in human nature (our wiring).  Be patient and always reflect.

Natural Disaster - there's no prevention here, only preparation.  One of the preparations is having enough cash and be mobile enough to go somewhere safe very quickly.