Did you know the standard railroad gauge in the U.S. is 4 feet 8 ½ inches? Do you know why it is such an odd measure?

Railroads in the United States were built by British expatriates who designed them the same way that rail lines were built in England. Engineers in Britain based the width of their railroads on the spacing of tramways which had preceded railroads. They built the trams with the same jigs and tools used for building wagons.

The wagons were built to that width so they would fit the road ruts in medieval England which were based on road ruts in Imperial Rome, which were in turn were designed to accommodate the size of war chariots. Those chariots were designed to accommodate the rear ends of two horses.[1]

You are not alone if you struggle with change, especially at time like this.

Financial Advisor Magazine surveyed and found 81% of clients felt very satisfied with their advisor if they received a written plan and 95% of them felt their financial advisor was giving adequate value.

Most plans are done quarterly or annually and made for a very long-term accumulation and spending prior to retirement and decumulation of wealth after retirement. Most plans are designed to take a couple or individuals to age 100.

What I find interesting is that the plans are based on past averages. There is no time like the present to understand that these plans do not anticipate black swans like a pandemic. Black swans are unseen, random, and unpredictable. But we live in a dynamic world where change is the only constant.

There is a saying, “we fight the last war”. That is – we expect the next war to look like the last, but technology and tactics have inevitably changed, and fighting the last war won’t win you the next. Until early this year, the greatest market fear of investors seemed to be another Great Recession. The Great Recession was one of the black swans few foresaw, and I do not know of any financial plan that anticipated it.

Then came the pandemic. Author and investor Nassim Nicholas Taleb in his book The Black Swan uses the analogy of a turkey whose life is very good and easy until November, when everything suddenly changes.[2]

For me, there is only one way to anticipate and plan through the black swan events: having a margin of safety so when these dramatic events happen, investors are able to easily sail through.

Right now, we live in a time when the stock market is out of sync with the economy. About half of the revenues of Standard and Poor’s companies come from overseas. The stock markets depend on the world-wide support of governments reacting to the pandemic. They depend of the return to normal by the world, not just the United States.

It is highly unlikely, in my opinion, that the return to normal will be the “V” that some hope for and anticipate. More likely, it will be uneven and there could be more stay-at-home orders and market downs.

Warren Buffett said of the way he invests, “I can’t be involved in 50 or 75 (or 500) things. That’s a Noah’s ark way of investing—you end up with a zoo that way. I like to put meaningful amounts of money in a few things”. I believe the same when creating client portfolios. During these times of stress during the pandemic, it only seems to make sense to find those companies like Buffett described:

Wonderful castles, surrounded by deep, dangerous moats where the leader inside is an honest and decent person. Preferably, the castle gets its strength from the genius inside; the moat is permanent and acts as a powerful deterrent to those considering an attack; and inside, the leader makes gold but doesn’t keep it all for himself. Roughly translated, we like great companies with dominant positions, whose franchise is hard to duplicate and has tremendous staying power or some permanence to it.[3]

These are the stocks that make up the portfolios built to generate a margin of safety. During the Great Recession, I saw and heard of many plans which failed miserably. Retirees had to reduce their living expenses. Students in secondary education had to change their college because the plan set up by parents had withered. People close to retirement had to work longer. Those were the plans about which I heard and saw. They made investors feel good prior to the Great Recession but were anything but feel good.

Having a plan in hand may make you feel comfortable and satisfied in the present. Predicting next week’s weather by looking at last week’s weather will sometimes get it right but can miss the storms and disturbances coming in the future.

Change is not easy, but sometimes change is necessary to achieve a better result: to achieve that margin of safety. That margin of safety is what I help my clients achieve.

Please stay safe and well.

Mike Adams


[1] @BillHolohanSolr (Bill Holohan). “They built them in England” Twitter, September 27, 2019.

[2] Taleb, Nassim Nicholas, The Black Swan (Random House, 2010).

[3] Berkshire Hathaway Annual Meeting, Omaha May 1, 1995.