Sharing a special meal with a loved one is a joy of life. My wife, who is a chef, has spoiled our family with delicious scratch-prepared meals for years. This love of good food also carries over to our travels. We often plan our trips around where we would like to eat. One of our favorite special occasion restaurants in New York City is Del Posto. Known for its elegant Italian cuisine, it received a rare four-star review from the New York Times in 2010. But sadly, Del Posto is no more. The restaurant permanently closed in the spring of 2021 after not being able to survive the pandemic-induced shutdown. While I am certainly not placing blame for its closure on poor management, as who could have foreseen an economic shutdown, it does offer the opportunity to ponder the concept of resilience. An important notion to consider for one’s financial situation and for the companies that one might consider investing in.
Resilience is largely an unseen aspect of life. You cannot count or touch it. Yet its presence assures and allows us to sleep well at night. What makes resilience so hard to spot is that it can only be proven during those rare times of crisis. Warren Buffet famously said that it is only when the tide goes out that you discover who’s been swimming naked. The only real test for hard times is to survive hard times.
Resilience comes at a cost. Resilience isn’t about maximizing profitability. Rather, it implies the intentional holding back of resources and the building up of redundancies into one’s business. Nassim Taleb wrote the following regarding redundancies.
“Layers of redundancies are the central risk management property of natural systems. Redundancy allows you to survive under adversity, thanks to availability of spare parts. We have two eyes, two lungs, two kidneys, and even two brains. So redundancy equals insurance, and the apparent inefficiencies are associated with the costs of maintaining these spare parts and the energy needed to keep them around in spite of idleness.”
Redundancy in the physical world is a metaphor for resilience in respect to our savings. There is a financial cost to resilience, as with insurance, but there is also a trade-off between objectives. Resilience is something quite different from maximizing returns. As Mr. Taleb puts it, “redundancy is ambiguous because it seems like a waste if nothing unusual happens. Except that something unusual happens, usually.”
One can savor the small joys of life most when at peace and truly present in the moment. A resilient financial foundation can provide this peace of mind. Cheers to that!
The opinions expressed are those of PYA Waltman Capital as of the date of publication and are subject to change due to changes in the market or economic conditions and may not necessarily come to pass. Forward looking statements cannot be guaranteed.
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