About That Perfect Storm Engulfing Your Life...

A perfect storm is one of those phenomena that is only supposed to occur once in a great while: once in a lifetime, once a century, once in recorded history.

But since we live in The Attention Economy, the premium on getting heads to turn, eyes to open and ears to perk up mandates that we do a bit better than claiming something was so amazing that it happened once this afternoon, or once last week.

The result is that we suffer from exaggeration fatigue, which only inspires people to go that much further in reaching for the language or the image that will grab us. One of the ways in which we attempt to do that is by employing cliches that once had a meaning that caught our attention. The Perfect Storm was one of those.

From the book and movie by the same name, the implication was that a confluence of powerful forces rarely and perhaps never before seen on this planet combined to create a situation that no one could have possibly predicted. That this sounds like - and often is - a pretty tawdry excuse for getting faked out of your undies by something you should have known was coming does not diminish its impact. Potentially.

But then we learn, in our information and transparency-inundated way, that according to Google, Perfect Storms apparently occurred 48,000 times in the last month alone. Which leads inquiring minds to wonder what perfect storm caused so many perfect storms...JL

Morgan Housel comments in The Motley Fool:

A Google search shows that at least 48,000 perfect storms have hit the economy since late July.
In his book "The Perfect Storm", Sebastian Junger described an event "that may happen only once in a century -- so rare a combination of factors that it could not possibly have been worse."
You're not going to believe it, but this happened to the economy almost 48,000 times in the last month.
I'm not kidding. A Google search shows that at least 48,000 perfect storms have hit the economy since late July. Here's a sampling:

• A perfect storm heading toward the British housing market.
• A perfect storm of low prices hurting the palm oil industry.
• A perfect storm for those bearish on the price of corn and soybeans.
• A perfect storm hitting the teenage job market.
• A perfect storm of fundamentals in the platinum market.
• A perfect storm threatening China's economy in 2016.
• A perfect storm of global investment threatening emerging markets.
• A perfect storm pushing gold prices higher.
• A perfect storm of Chinese manufacturing and Argentina's currency problems threatening Europe.

And that's just the economy. A perfect storm also struck Saskatoon's public transit system, a college football game in North Dakota, and a Texas mosquitos, while Justin Bieber's dating life created "a perfect storm of juicy drama."
This is all ridiculous, of course. "Some stuff happened" should replace 99.9% of references to the phrase "perfect storm."
Calling stuff that happens all the time a "perfect storm" isn't just innocent hyperbole. It's dangerous because it makes us discount the danger of an actual perfect storm. If you think stocks and gold losing value at the same time is a perfect economic storm, you will completely lose your mind when Lehman Brothers and AIG collapse in the same week.
According to investor William Bernstein, there are two types of investing risk.
One is "shallow risk," which is a temporary drop in an asset's price. This is normal volatility. "Volatility is the chance that a properly diversified equity portfolio will decline substantially below an investor's cost temporarily, then subsequently recover, then rise to new heights," investor Nicholas Murray told me last month. "This pattern has eventuated every single time throughout history. The average recovery time of all bear markets since 1926 -- with reinvested dividends but also counting inflation -- is about 40 months."
Shallow risk should be looked at as little more than an annoyance. Almost everything the media calls a perfect storm is really just standard shallow risk.
Another type of risk is what Bernstein calls deep risk. Deep risk will legitimately ruin your life. It's when you lose lots of money and have no reasonable chance of ever making it back.
According to Bernstein, four things cause deep risk: inflation, deflation, confiscation, and devastation.
Germany faced hyperinflation in the 1920s, deflation in the 1930s, and confiscation and devastation in the 1940s. That's deep risk, and a true perfect storm – something that might happen once a century, and a combination of factors that could not possibly have been worse.
"Deep risk," Bernstein writes, is something you "cannot avoid no matter how disciplined and prudent you are." He says it's "a hall-of-mirrors world in which the bedrock principles of finance distort and even invert."
The reason actual perfect storms are so dangerous is because they're so rare. The rarer something is, the less we prepare for it, and the less we prepare for it, the more devastating it is when it arrives. "Risk," financial adviser Carl Richards writes, "is what's left over when you think you've thought of everything." That doesn't happen 48,000 times per month.