Coaxed from AI by,
Grant Colby
Managing Partner & CEO
I was using Microsoft’s Copilot AI tool to formulate some thoughts for an article I wanted to write about how risk management generally gets too little attention until it’s too late. My queries were quite specific, and the results were not what I was looking for until I switched tactics and made a statement instead of asking another specific question. As is often the case, I found the ensuing interaction with the AI fascinating and share-worthy. I hope you enjoy it.
Fair warning: the tone is overly flattering of the protagonist, but it is certainly entertaining and captures some essential truths about risk management. I couldn’t help but wonder if the AI had accidentally swapped my persona with that of a superhero. Picture this: me, clad in a tailored suit, analyzing stock charts while simultaneously decoding ancient financial texts. Oh, and did I mention I can balance a spreadsheet faster than a speeding bullet? (fun fact: AI also wrote this paragraph 😊)
Enough already. Let’s get to the AI exchange.
NCP
risk management is not interesting until after the calamity.
Copilot
Indeed, the paradox of risk management lies in its allure: it often remains unremarkable until disaster strikes. We humans, with our penchant for urgency and immediacy, tend to overlook the subtle whispers of risk—those quiet nudges that hint at impending calamity. It’s as if we’re spectators in a theater, engrossed in the unfolding drama, only to realize that the fire exits were there all along, waiting for our attention.
Consider the stock market: When the bulls run rampant, euphoria sweeps through trading floors. Investors dance on the precipice of profit, their eyes fixed on rising charts and multiplying digits. Risk management? Oh, that’s for the cautious, the worrywarts—the ones who don’t know how to party. But then, the market trembles. The bears emerge, claws unsheathed. Suddenly, risk management becomes riveting. Panic ensues, and portfolios crumble like ancient scrolls. The once-dismissed signs—subtle shifts in sentiment, murmurs of volatility—now scream in neon letters: “You should have paid attention!”
Or think of a coastal town basking in the sun. Waves lap lazily against the shore, and beachgoers build sandcastles, blissfully ignorant. The weather forecast? A mere backdrop. But then, the horizon darkens. The sea swells, hungry for land. The signs—subtle at first—become urgent: seagulls fleeing inland, a distant rumble. Now risk management is captivating. Evacuations, sandbags, prayers whispered to Poseidon. The calamity looms, and hindsight sharpens its blade.
Why does this happen? Perhaps it’s our human wiring—an evolutionary glitch. We’re wired to react, not prevent. The adrenaline surge when the lion charges, the sprint to escape the avalanche—those moments define us. But the quiet vigilance—the scanning of skies for vultures, the reinforcement of levees before the deluge—those don’t make headlines. They’re backstage crew, unsung heroes until the curtain falls.
So, here we are, post-calamity, dissecting the wreckage. Risk management textbooks gather dust, their pages dog-eared by hindsight. We vow to be wiser next time, to heed the signs. But will we? Or will the allure of immediacy pull us back into the dance, blinding us to the subtle whispers once more?
Risk management, my friend, is the art of listening to silence. It’s the recognition that the mundane—those unremarkable probabilities—can shape destinies. So, let’s raise our glasses to the unsung heroes—the actuaries, the safety inspectors, the weather forecasters. May their work remain unremarkable, for it means we’re still dancing on the edge of calamity. 🌊🕊️🎭
NCP
is what you just wrote original thinking or attributable to someone else?
Copilot
The content I provided in my previous response is original, generated by me based on the context and the guidelines I follow. While it draws inspiration from various sources, it does not directly quote any specific individual or work. If you have any other requests or need further information, feel free to ask! 😊
Glad you liked this answer!
NCP
May I quote you?
Copilot
Certainly! Feel free to quote any part of our conversation. If you need further assistance or have more questions, don’t hesitate to ask. 😊
NCP
Can you write a piece on how it feels to be a portfolio manager who is diligently focused on risk management during a bull market that appears oblivious to risk.
Copilot
Certainly! As a portfolio manager navigating the treacherous waters of a bull market, where exuberance reigns and asset prices soar, the role of risk management takes on an almost Sisyphean quality. Let me paint the canvas of this paradox for you:
The Bull Market Mirage
Act I: The Euphoria
The sun rises on Wall Street, casting golden hues upon the trading floor. Bulls stampede, their hooves echoing through the marble corridors. CNBC pundits cheer, their voices reaching a crescendo. It’s a bull market—a carnival of optimism, where gains multiply like rabbits in spring. The air crackles with euphoria, and you, the portfolio manager, stand at the center.
Your colleagues? They’re surfing the wave, riding high on momentum stocks, their eyes glazed with visions of yachts and private islands. They chant the mantra: “Buy the dip!” Their screens glow green, and they high-five algorithms that dance to the rhythm of algorithms. Risk? It’s a distant echo, drowned out by the roar of profits.
Act II: The Whisper of Shadows
But you? You’re the sentinel—the one who remembers the 2008 crisis, the dot-com bubble, the ghosts of Black Mondays past. You see the signs—the idiosyncratic risks lurking in the corners. The overleveraged unicorns, the frothy valuations, the debt-laden zombies parading as growth stocks. You study the yield curve, its inversion a cryptic message from the Oracle of Bonds. You calculate beta coefficients in your sleep, haunted by the specter of correlation breakdowns.
Your risk models blink red. They scream, “Caution!” But the crowd? They’re too busy chasing Tesla rockets and crypto comets. They scoff at your dry powder—those cash reserves you’ve squirreled away for stormy days. “Opportunity cost!” they cry. “The market waits for no one!”
Act III: The Tightrope
And so, you walk the tightrope—a portfolio manager in a circus of greed. You diversify, spreading your bets like breadcrumbs in a forest. You set stop-loss orders, hoping they’ll catch you when the ground trembles. You consider hedging—options, futures, anything to soften the fall. But the bull market? It pirouettes, mocking your caution. It whispers, “Risk is for the timid.”
You’re the Cassandra—the one who warns of impending doom. You pen emails to clients: “Dear Investor, while the sun shines, remember the shadows.” But they’re too busy counting their unrealized gains, their dopamine receptors firing with each green candlestick. They reply, “Thanks, but we’re all in on Dogecoin.”
Finale: The Unseen Hero
And so, my dear portfolio manager, you soldier on. You sip your lukewarm coffee, eyes on the VIX index—the fear gauge. You adjust your asset allocation, tilting toward quality, toward the unsexy stalwarts that weather storms. You’re the unsung hero—the one who doesn’t make headlines until the headlines scream “Correction!” or “Bear Market!”
Remember this: Risk management is the art of being unremarkable until it matters. When the bull market stumbles, when the euphoria curdles into panic, your diligence will be your armor. You’ll buy when others panic-sell, and you’ll whisper to the wind, “I told you so.”
So, raise your glass to volatility—the unseen guest at this bull market feast. And may your dry powder remain dry until the storm arrives. 🌪️📈🥂
Disclaimer: This piece is a work of imagination, inspired by the complexities faced by portfolio managers during bull markets. Any resemblance to actual events or characters is purely coincidental.123
Feel free to ask for more tales from the financial circus! 🎪🎩📊
Want to talk about risk management with the almost author?
Coaxed from AI by,
Grant Colby
Managing Partner & CEO
