Redefining Risk Before the Next Wave

Over the past few weeks, I’ve written about lessons from the 1920s—when exuberance and financial engineering outpaced understanding—and the 1990s, when the dot-com and telecom booms built massive infrastructure before collapsing under their own weight.

Both decades taught us the same timeless lesson: markets can feel unstoppable right up until they’re not. Excess always meets a reckoning.

So before we turn our focus to today’s AI infrastructure build-out and its surrounding risks and opportunities, it’s worth pausing on a more fundamental question: What do we really mean by “risk”?

Volatility vs. Permanent Loss

In much of our industry, risk is defined as volatility. If prices swing, the model says it’s risky. But volatility isn’t what keeps me up at night.

You can recover from volatility. You cannot recover from permanent loss of capital.

• A volatile stock can plunge and later rebound. That’s uncomfortable, but survivable.
• A “safe” bond that defaults? That’s gone. Permanent impairment.

This is the distinction that matters most.

The Paradox of Stability

Here’s the paradox: investors are often lulled into chasing stability. Smooth returns look safe—until they aren’t.

• In 1998, Long-Term Capital Management promised low-volatility arbitrage. The strategy imploded when leverage turned small moves into catastrophe.
• In 2007, mortgage-backed securities looked steady—until the underlying credit cracked, permanently impairing trillions in wealth.

On the flip side, volatile investments often create opportunity:

• Amazon, down 90% after the dot-com bust, grew into one of the most valuable businesses in history.
• Quality equities in March 2020 suffered violent drawdowns but quickly recovered for patient investors.

The lesson: “stable” isn’t always safe. “Volatile” isn’t always dangerous.

Building Boats for the Storms Ahead

Risk, to us at Members’ Wealth, is about preparing for the storms we know will come—without knowing when.

That means:

• Diversification: real diversification, not just more of the same.
• Understanding: owning only what we truly understand.
• Humility: admitting we don’t know everything, but preparing anyway.

Because when the tide goes out[i]—as Buffett famously said—we want to be the ones with our shorts on and a strong enough boat to ride out the storm. OK he didn’t say that, but that is my response to what he really said…

Where This Leads

1920s. 1990s. Today. The story repeats: exuberance, complacency, reckoning. And as noted before – you cannot time it perfectly; thus, you should not hide under a mattress nor run up to a cliff's edge in the dark.

As we look at today’s market, the distinction between volatility and permanent loss matters more than ever. It’s why we often fear “safe” debt with high yields more than volatile equities with no debt. The former can lead to permanent impairment when the music stops; the latter can survive volatility and grow back stronger.

That’s where we’ll go next—evaluating AI, debt, equity, and the opportunities ahead with a sharper focus on avoiding permanent loss of capital.

And the beat goes on.

If you’d like to review how your portfolio defines and manages risk—before the next wave hits—let’s talk.

[i] You only find out who is swimming naked when the tide goes out.”
— Warren Buffett, Berkshire Hathaway Annual Letter, 2001

Investment strategies, including rebalancing, do not guarantee improved performance and involve risk, including potential loss of principal. Past performance does not guarantee future results.

The information provided is for educational and informational purposes only and does not constitute investment advice and it should not be relied on as such. It should not be considered a solicitation to buy or an offer to sell a security. It does not take into account any investor's particular investment objectives, strategies, tax status or investment horizon. 
All information has been obtained from sources believed to be reliable, but its accuracy is not guaranteed. There is no representation or warranty as to the current accuracy, reliability or completeness of, nor liability for, decisions based on such information and it should not be relied on as such.

About the Author

Dane Czaplicki, CFA®

Dane Czaplicki is CEO of Members’ Wealth, a boutique wealth management firm that offers a comprehensive approach to serving individuals, families, business owners, and institutions. The firm’s goal is to preserve and grow its clients’ wealth to endure over time, while thoughtfully evolving its strategy to suit an ever-changing world. With over 20 years of wealth management experience, Dane and the Members' Wealth team thrive on bringing clarity and confidence to clients' unique situations. He believes everyone needs sound financial advice from someone whose interests are aligned with theirs, and is determined to put service before all else.

Dane received his MBA from The Wharton School of Business at the University of Pennsylvania and his bachelor’s degree from Bloomsburg University. Outside work, he enjoys spending time with his wife and kids, hiking and camping, reading, running, and playing with his dog. To learn more about Dane, connect with him on LinkedIn.

To get in touch with the Members’ Wealth team today, I invite you to email info@memberswealthllc.com or call (267) 367-5453. 

You can learn more about how we serve our clients by tapping the button below.

Investment advisory services are offered through Members’ Wealth, LLC., a Registered Investment Advisory Firm.

Registration with the SEC does not imply a certain level of skill or training. We are an independent advisory firm helping individuals achieve their financial needs and goals

Members’ Wealth does not provide legal, accounting or tax advice. Please consult your tax or legal advisors before taking any action that may have tax consequences.

This commentary reflects the personal opinions, viewpoints and analyses of the Members’ Wealth, LLC employees providing such comments, and should not be regarded as a description of advisory services provided by Members’ Wealth, LLC or performance returns of any Members’ Wealth, LLC client. The views reflected in the commentary are subject to change at any time without notice. Nothing in this commentary constitutes investment advice, performance data or any recommendation that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person. Any mention of a particular security and related performance data is not a recommendation to buy or sell that security. Members’ Wealth, LLC manages its clients’ accounts using a variety of investment techniques and strategies, which are not necessarily discussed in the commentary. Investments in securities involve the risk of loss. Past performance is no guarantee of future results

Copyright © 2023 Members' Wealth LLC