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Posted by on Jul 6, 2017 in ETF Strategist, Featured

The Unfightable Wildifre

The Unfightable Wildifre

By Roger Nusbaum, AdvisorShares ETF Strategist

If you have looked at lately you’ve seen pictures that I posted from the Goodwin Fire which started on June 24th and quickly grew into what was for a couple of days an unfightable fire for the steep terrain, dense forest (at the higher elevations) and chaparral/manzanita at the lower elevations that was very tall and so think it could not be walked through. Thursday became a make or break day, needing a lot of things (notably the weather) to go right in order to finally tie off the fire. Our area was evacuated for almost a week. I’ll write a post about the personal aspect of this shortly but for now there is a lot overlap with investing and retirement planning that makes for a good analogy.

As a bit of background for anyone new, I have been a volunteer firefighter with the department in my little town just outside of Prescott, AZ since 2003 and for the last five and half years I have been the fire chief. This was the second time our community was threatened by such a serious fire since I became chief (not sure when the last serious threat was before I joined).

There are certain fire behaviors that need to be understood as basic building blocks of understanding. Much like with markets, these building blocks aren’t infallible but do account for the vast majority of fire behavior. Understanding the basics is likely to reduce panic. As an example, at night, fire crews will conduct burning operations. Fire is less active at night because the temperature is lower and the humidity goes up. Fire tends not to rip at night so burning out removes fuel that it might otherwise rip through during the day. This night burning creates smoke that tends to hang low in the morning, trapped under an inversion layer that dissipates late in the morning and the smoke is then gone (toward the end of the fire).

There was a lot of concern when people would see the smoke looking worse in the early morning than it did the afternoon before. Bear markets come, scare people, and then they end.

Every so often you’ll see someone smart advise to pay less attention to the news, turn off CNBC because most of it is actually noise, not news. The internet for all the great things it offers, allows people to find information that they will not process correctly. As the Goodwin Fire was playing out, people were finding satellite and infrared maps of the fire and seeing that the next morning the fire had grown and this caused more concern even if not quite panic but this was a case of not knowing what to do with the information they were finding. If crews are performing burnout operations overnight that means their actions are causing the fire to grow. When burning operations are successful, that is a good thing but with no other information other than a heat map it would be easy to draw the wrong conclusion. Drawing the wrong conclusion with an investment portfolio will lead to sales or purchases at the wrong time.

Ultimately, fires are fought successfully with the right combination of tactics, strategies, people and psychology, no different than investing.

The AlphaBaskets blog provides frequent market insight and commentary by AdvisorShares Investments, LLC, created by AdvisorShares and other leading active managers.  AdvisorShares Investments is an SEC-registered investment adviser and the investment adviser to the AdvisorShares actively managed ETFs. The views expressed on AlphaBaskets should not be taken as investment advice or a recommendation for any of the actively managed ETFs advised by AdvisorShares.