Risk is What You Don’t See


While known risks like recessions are widely discussed, the most consequential risks may be those not currently on our radar. Dylan Potter, Vice President and Wealth Manager at Howe & Rusling, shares a story from his time as a U.S. Army Ranger detailing how the most perilous risks often go unnoticed and how this applies to your portfolio.

Person walking on a tight rope surrounded by rocks

On October 31, 2011, I was leading a mission in Southern Afghanistan to clear an enemy held village. In Army language “clearing” is “a tactical mission task that requires the commander to remove all enemy forces and eliminate organized resistance in an assigned area.” The mission was uncomplicated. In the middle of the night, myself and about 50 of my soldiers and Afghan partners would fly on helicopters to a landing zone a few kilometers north of the target area. Once we landed, we would walk on foot undetected (if there is such a thing) to the village where we would begin physically clearing multiple housing clusters known to contain enemy fighters, weapons, and bomb making material. After 48 hours, we would call the helicopters back in to pick us up.

The aerial insertion went off without a hitch.

The movement to the village, although slowed by us finding and blowing up a few booby traps, was uneventful. When we arrived at the village, the sun was just beginning to crest over the horizon. We saw no one…no kids, no adults, no animals. This was never a good sign. Life in most Afghan villages begins early. At sunrise, local mullahs play the Islamic Call to Prayer over loudspeakers. After praying, the men and boys shuffle out to the fields or streams to begin their day. Women are confined to the home and not allowed to leave without the presence of their husbands or other men in the family.

Two scenarios ran through my head, both of which we had dealt with before. We were either in for a fight (hence the lack of children in the streets) or the Taliban fighters had been tipped off that we were coming and chose to flee. Our Afghan “partners” regularly let mission details slip.

The first task at hand was to secure a “foothold.”

This meant clearing the first (and hopefully tallest) compound to establish an overwatch position manned by our snipers and machine gunners. They would serve as our “eyes and ears” as the remainder of my element pushed forward through the narrow alleyways and maze of mud-wall compounds.

The compound we chose to clear first was empty. When we moved into the main courtyard, we chose to take a tactical pause. As we regrouped, I called our bomb sniffing dog handler on the radio, instructing him to send in the bomb dog for a final sweep of the ground floor before we attempted to establish our overwatch position on the mud roof.

The large Belgian Malinois (pictured above; notice the shaved portions on his front legs so he could be given an IV more easily) entered and enthusiastically began his own search. He moved methodically and energetically before stopping and sitting, intently staring into the upper corner of one of the rooms. “He’s got a hit” the dog handler said to me. Gingerly we called the dog out of the room (we gave him some treats and a friendly belly rub) and carefully began our search for what caused the dog to “register a hit.” We went to work searching—looking for discoloration on the walls, hidden compartments, trip wires—anything that might have confirmed the dog’s trustworthy nose for explosives or bombs. After tearing the room apart, we came to the same conclusion—the dog must have registered a false positive. Satisfied and with the ground floor clear, I ordered my machine gunners and snipers up onto the roof.

Simultaneously, I moved into the room where the dog had so intently stared up into the corner.

As I sat down to make a radio call informing my higher headquarters of our progress thus far, a deafening explosion rocked my world. The whole room shook. Dust and debris filled my vision and my ears rang. Moments later, the team on the roof above me could be heard screaming for our platoon medic. I ran back out into the courtyard to assess the situation. One of my machine gunners had stepped on a booby trap hidden on the roof. He was severely wounded and trapped on the partially collapsed roof. My soldiers moved methodically, scrambling up onto the roof to lower our shattered and rapidly expiring machine gunner down to the courtyard.

While our medic was applying tourniquets to the devastated limbs of my soldier, I grabbed another small team and moved to secure a suitable helicopter landing zone. About 18 minutes later, a MEDEVAC helicopter touched down to remove our wounded comrade (he would survive and is a double amputee). As the helicopter’s rotors faded into the distance, I regrouped with the leaders in my platoon to discuss next steps and what had just happened.

It was around this time that we all realized the dog never had a false hit.

In fact, the dog had smelled the explosive booby trap through the roof. That was why it so intently stared into the upper corner of the room. Think about how remarkable that is for a second.

At that point we had been in Afghanistan for eight months. We had seen a lot. We had been in numerous fire fights and we had seen explosives configured in almost every way imaginable…but we had never seen booby traps on a roof. In that moment, the limit of our own experiences and imaginations failed us. We failed to see what was in front of us because we had no mental framework for what we were inevitably about to encounter.

The riskiest stuff is always what we don’t see coming.   

October 31, 2011 is a day I think about when I think about our portfolios and the economy, as odd as that might sound at first. Paying attention to known risks is smart. But we should acknowledge that what we cannot see, is not being talked about, and are not prepared for, will likely be more consequential than all the known risks combined. Recession talk is everywhere. Government shutdown talk is everywhere. Recessions, stemming from interest rate related contractions, are known risks. The bottom line is everyone knows—and is talking about—a recession. If everyone is talking about a certain thing, the higher the likelihood that its ramifications are potentially already being priced in.

If you are contemplating a drastic shift to your own portfolio, just remember, investing comes down to surviving an inevitable series of short-term obstacles in order to enjoy the effects of long-term compounding and slow progress.

Events like 9/11 or the collapse of Lehman Brothers in September of 2008 were seismic events.

The fact that few could even imagine them before they occurred are what turned them into complete disasters. Risk becomes even more unpleasant when you think it requires a perfectly timed trade or exact playbook before you start preparing for it. It’s better to have expectations that risk will rear its head, but you don’t know when or where, than to rely on forecasts—almost all of which are about things that are routinely well known, circulated, and already priced in.

Is your asset allocation aligned to your time horizon and tolerance? Do you have an adequate emergency fund? If you are a business owner, do you have enough cash set aside to keep paying your employees if revenue ever dried up?

Morgan Housel writes, “In investing, the average consequences of risk make up most of the daily news headlines. But the tail-end consequences of risk – like pandemics, and depressions – are what make the pages of history books. They’re all that matter. They’re all you should focus on. We spent the last decade debating whether economic risk meant the Federal Reserve set interest rates at 0.25% or 0.5%. Then 36 million people lost their jobs in two months because of a virus. It’s absurd.”

So, as we are finally at the point where stocks have almost recovered after a terrible 2022, use this moment to recalibrate your risk tolerance.

If the volatility of the last year made you lose sleep, you are probably taking too much risk. If you are going to make drastic changes, do so as the basis of a long-term plan that aligns with your goals…not another fleeting headline.  

Dylan Potter

Dylan is a partner, Vice President and Wealth Manager at Howe & Rusling.


Get the latest content from Beyond the Bell