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Author: imdajunkman Three stars, 500 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 35365  
Subject: Lokicious Builds His Maginot Line (repost) Date: 11/6/2006 8:00 PM
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The following is a re-post due to a crucial typo. In the process, the HTML formatting got lost, which is just as well. It was obnoxious.
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Metaphors can be instructive because, in one glimpse, they provide an intuitive understanding of a situation, or, in this case, a strategy.

It occurred to me, as I did a brief walk through the nearby park, the winds and rains lashing the trees still holding a bit of their color, that Loki is building for himself a financial version of the Maginot Line, which, as the following quote from Wikipedia suggests, "[is] Generally considered one of the great failures of military history." As you'll remember from your European history classes, the French feared the Germans would invade them, so they build a huge, impenetrable, defensive wall across the likely path of attack. But the Germans simply did an end-run around it and crushed the French army.

The article goes on to say … the term "Maginot Line" is now sometimes used as a metaphor for something that is confidently relied upon though ending up being ineffective…. the Line was to provide coordinated backup to resistance from the French Army. But execution of the plan was lax and this, combined with a failure to appreciate that the frustration of one particular approach would not necessarily render an aggressor impotent, cost both the Line and the French Army their effectiveness. In some sense, French authorities came to believe their own propaganda: that the mere existence of the Line rendered them impervious to invasion. Thus, the MaginotLine makes a good metaphor. If all of one's best-laid plans come to naught, because one has only defended against what is easy to conceive of or easy to defend against, but not what subsequently occurs, of what use were those defenses? That is the lesson I wish to suggest.

The future that Loki is preparing for is a future that cannot be known, unless of course, divine revelation is once again operative in the lives of mere mortals. This is not to say that planning for the future cannot be done, or that carefully-made estimates of that future might not prove to be shrewd and useful. But in advance of their happening, those events --neither their likelihood, nor their magnitude-- cannot be known. They can only be guessed at. And if one makes wrong guesses, by under-estimating the financial risks that the future might bring, and those risks were reasonable to anticipate and should have been prepared for, then being surprised by them will be of little comfort, nor will the fact that so many others have also screwed up in their planning. I despise that sort of lemming-like thinking. “When everyone is thinking the same, no one is thinking.”

Loki would say of me it's a personality thing, and I would fully agree. I HATE RISK. But I'd also argue that where risk is concerned, the best defense is a good offense. If I need to be able to manage greater risks in the future, I want to learn how to manage them now. So I'll do the financial equivalent of learning how to lay bricks or build gun emplacements, how to run tank maneuvers and how to do tactical retreats, and I'll study my enemy. But I don't waste time building Maginot Lines, and I don't fool myself with beliefs about their efficacy. Not a one of Loki's planning estimates isn't based on assumptions, and not a one of them can be tested. The whole structure is tea leaves that swirl in the bowl of life and then settle into random patterns. If that sort of faith-based augury appeals to you, go for it. You've got your number-crunching guru. But remember this: GARBAGE IN; GARBAGE OUT.

Me? I'd argue that one's financial planning and one's investing (or trading) should be based on the principles with which the Motley Fool was founded: “Question the conventional “wisdoms” and, as you do, grab for yourself a bit of fun and profit.” Fool on.

Charlie

http://en.wikipedia.org/wiki/Maginot_Line
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