Buyer Beware : Lessons from TITAN's Implosion
Oceangate Expedition and the catastrophe that followed
A Billionaire: “I have achieved everything. I live in a mansion, bought a gulf jet, traveled the world, and built an empire, but I still feel empty. I want to do something that’s out of the ordinary, something unchartered and crazy, create a memory I could cherish forever.”
An Adventurer who flirts with risk: “How about we go 12,500 feet deep to explore Titanic up close and personal? This would be a feat not attempted by many before, something completely crazy and extraordinary, and what would make it special is having your family member too with you. How does this sound?
The Billionaire: Is this possible?
The Adventurer: Yes indeed. We can do it.
The Billionaire: Wow. Then let’s go. Titanic - here I come. I will get my son along too.
This conversation is purely my imagination about what would have transpired between the billionaire on the Titanic submersible and the founder of Oceangate Expeditions, contextually at least. You may not appreciate the seriousness of this situation being turned into a casual conversation for reference, but I couldn’t help it, especially after going through the history of TITAN, the submersible that imploded and killed everyone on board.
Few facts from a New York Times article -
OceanGate’s director of marine operations, David Lochridge, produced a scathing document in 2018 in which he said the craft needed more testing and stressed “the potential dangers to passengers of the Titan as the submersible reached extreme depths.”
Stockton Rush, the founder of Oceangate had been warned several times that the company’s “experimental” approach and its decision to forgo a traditional assessment could lead to potentially “catastrophic” problems with the Titanic mission.
OceanGate’s marketing of the Titan claimed that the submersible would meet or exceed the safety standards of a risk assessment company known as DNV, even though the company had no plans to have the craft formally certified by the agency.
OceanGate had avoided having to abide by certain U.S. regulations by deploying the vessel in international waters, where Coast Guard rules did not apply.
In a CBS report last year, David Pogue, a former New York Times technology columnist, joined one of OceanGate’s Titanic expeditions and said the paperwork that he signed before getting onboard warned that the Titan was an “experimental vessel” that had not been “approved or certified by any regulatory body, and could result in physical injury, emotional trauma or death.”
There were just too many red flags to ever be comfortable with making this choice, especially when the possibility of complete ruin (demise) isn’t 0. And we still had very successful people choosing to ride this vessel, risking their lives in the pursuit, and eventually paying a very heavy price.
This is disturbing and throws up a lot of questions in my mind -
Why say yes to an expedition not yet approved for tourists or commercial trips?
Why bring along the legal heir to the business also in this exploratory vessel?
Why say yes to the vessel itself which has gone through umpteen delays, engineering problems, and has even provoked many industry veterans to write a letter highlighting the risks therein?
Why say yes to something which has even a 0.1% probability of complete ruin?
WHY?
It could have been any of the following options or maybe all of them at some level -
Boredom
Looking Good
Leaving a legacy
Inspiring the world
A sense of challenge
Something new to talk about
Looking for Excitement or Adventure
Shaping the underwater exploration industry
Irrespective of what it was, the one thing that disturbs me the most was that it had more than nil probability of catastrophe leading to death. And that alone should have been the reason to say NO. Unless you are an adventurer, explorer, or gambler, who is willing to bet even with the odds are stacked against you.
Morgan Housel has expressed this often-seen phenomenon beautifully - “People are masters at discounting risks that threaten the continuation of their past success. Winning feels good, but winning and then assuming you’ll keep winning indefinitely by doing what you just did is pure heaven and too hard to let go of.”
This incident just emphasizes the importance of understanding the risks that one faces in their choices. Without a firm grip on it, ruin is just one mistake away.
Let’s say you have USD 100,000 to invest and you have saved this after 10 years of hard work in your corporate role. Now you have 2 choices -
Choice #1
Make your money work for you, just faster. This would entail taking exposure to volatile securities, maybe leverage, maybe exotic options, maybe blindly buying into stories of magicians or charlatans. This gives you a dopamine hit and a sense of excitement and you already can see yourself with a net worth of USD 500,000 in a few years.
That’s great if it happens and you will be referred to as a hero or a genius. But if things go wrong, you have USD 100,000 flushed down the drain i.e. 10 years of savings wiped off because you wanted to go fast.
Choice #2
Investing in an index (S&P500) and letting the capital grow at a historic growth rate of 8.91%. It’s boring, it’s slow, it’s plain vanilla, and it doesn’t titillate your bones. But the best part is, there is no chance of ruin. You could go through some volatile periods, but you don’t lose it all. You are still in the game.
And that’s why Warren Buffet has always stated - “There are only 2 rules for investing. Rule #1 - Don’t lose money. Rule #2 - Don’t forget rule 1.”
Warren isn’t telling you not to take risks. Investing cannot be without some risk. He only is emphasizing the importance of avoiding the risks that can take you out of the game, leaving you incapable to play again. Because if that happens, then there is no coming back. There is no tomorrow.
Risk management isn’t an investing concept. It’s a mental model that could pay dividends for life. It’s a framework that keeps you in the game, taking shots at success and abundance. It’s a strategy that compounds your wealth and reputation. It’s not an exciting thing to think about but it’s essential for preservation and hence needs your attention. It avoids you from committing acts that are not short of stupidity.
Let me help you with a few frameworks that could save you a lot of trouble. A LOT OF TROUBLE literally.
Newspaper Test #
If you are tempted to act in a certain way and if those actions are reported in the papers tomorrow, would you be happy or proud about it? If no, stay clear.
Lifestyle Creep #
Will this purchase need many other purchases to go with it, then think twice about it e.g. Will buying your Gucci shoes need a Gucci belt also to go along with it? Will this need Gucci apparel too since you are the Gucci Guy? Will these purchases need higher expenditure too to maintain their sheen and quality? If yes, then think twice.
Buy one now, only if you can buy two of these on your debit card today. If you can’t, then postpone the decision for some other time.
Stupidity Test #
If you are risking what you have with you now for what you don’t need tomorrow, then give it a pass e.g. you have a million dollars in the bank and you are risking it all for USD 10 million tomorrow. Do you need 10 million tomorrow? No, you don’t. You may desire it intensely, but that’s not a need. Avoiding stupidity would need a sense of awareness to differentiate between a want and a need.
Buyer Beware #
If you don’t understand the ingredients or never heard of them before, then avoid making the purchase of this packaged good. Don’t believe every promise made on the packaging or in advertisements. Those are designed to make you feel good about making that purchase, but not engineered for your actual benefit.
This is the ingredient list of Hobnobs - McVitie's 30g Snack Bar. Is this food or a chemical factory? Do I even understand the meaning of humectant? Am I aware of any benefits from consuming Glucose-fructose syrup or vegetable oils? I wouldn’t ever touch it unless starving in the middle of the desert and left with no choice.
Too Difficult pile #
If something sounds very complex or needs your signatures on 40 different pages, that give it a pass.
Leverage #
Leverage can increase your returns if your call goes right. But would it lead to a complete loss of capital if the call goes wrong? If yes, steer clear of loading on debt. If you do load on debt, do you have enough liquid assets to pay it off if needed? If yes, then, by all means, you can consider taking it on.
Do you understand the asset class you are taking leverage for? If not, steer clear.
Low expectations #
No one is perfect, so why expect someone to execute everything perfectly? You have flaws of your own and others will have theirs too. If you could only increase your threshold to tolerate a little (not a lot) of nuisance, incompetency, or hassle due to flaws that we all have, that alone could allow you to be patient in your demeanor and warm in your relationships.
This virtue has a tendency to pay dividends for life. Having low expectations also comes with its own share of happy surprises when people surpass your expectations of them. It’s a trick for keeping many relationships young and joyful too.
High expectations from all lead to unfulfilled expectations, which leads to disappointments, which eventually leads to sucking your energy and positivity away. Why do you think many lack vitality and bounce in their step or voice, after many years in the pursuit of their goals?
Role of Luck #
Being thankful for the role luck has played in your life also makes you humble, instead of riding on overconfidence at all times. The former will make you skeptical and careful while making decisions, and you should be. The latter will make you say yes to a 12,500 feet deep sea exploration because everything you did before worked out like magic.
Skin in the game #
Only listen to those people’s opinions whose portfolio is structured in a way that would benefit them immensely if their call goes right e.g. A salesman pitching you a villa in an upmarket community shouldn’t deserve your trust if he himself lives in a studio apartment in the suburbs. You rather take the opinion of an investor who has a portfolio of property investments in the community you are considering.
You could leverage on the salesman for factual information or operation stuff.
Not his opinion, please.
Oceangate’s expedition to explore Titanic is a very unfortunate event and my heart goes out to the families of those on board.
But it also is another episode of hubris, arrogance, and casualness displayed by humans leading to many paying the price. This has been happening since the dawn of humanity and will continue happening in different shapes and forms.
And hence I would invite you to remind yourself always of the dictum ‘Buyer Beware’. It is you and you alone that can protect and preserve your survival. Please don’t rest on the assumption that everyone around you is interested in your survival and growth. They can’t be. They don’t have incentives aligned in that way.
I will let Jesse Livermore (one of the best stock pickers) summarise this piece and leave you with a very valuable lesson -
“I sometimes think that no price is too high for a speculator to pay to learn that which will keep him from getting the swelled head. A great many smashes by brilliant men can be traced directly to the swelled head. It’s an expensive disease everywhere to everybody.”
Recommendations for the week #
For anyone in the corporate world and keen to learn a few principles of being effective as an executive, then I have a treat for you. Staysaasy has an excellent piece on this topic and it covers executive presence in a very effective manner. It might even need a reread every month, just so that you don’t forget these crucial elements in play while being subtle in its execution.
If you are as curious as I am, then you too would have come across enough tweets/emails seeking your time and money desperately. These inbound messages or timeline feeds promise you riches and fame in any domain of your picking. Some will make you AI masters in a week and some will make you lose belly fat in a month. It’s like being in a constant infomercial of sorts with promises and predictions. If yes, then do read this post by Bobbie Armstrong to understand what’s really going on and how to deal with it. It’s hilarious and you enjoy it to bits ;)
In extension to Bobbie Armstrong’s piece, I also recommend a piece by Nick Magiulli wherein he covers the tendency of actually successful people seeking your time, attention, and respect - that too, desperately. Money doesn’t excite them anymore, but weirdly respect and attention are all they crave for. It’s a sad but honest trip through the minds of multi-millionaires begging for the resource that many of us have in abundance i.e. attention.
It’s a long holiday in Dubai and I am traveling to India to spend time with my parents and also attend a 4-day workshop at Flame University, Pune. One of my favorite professors Mr. Sanjay Bakshi will be spending all that time teaching us Business Analysis through umpteen case studies from the Investing world. Can’t wait to be there…
Wishing all the new subscribers a warm welcome to the community. And wishing you all a fantastic weekend ahead.
Happy Eid holidays to all in the Gulf region.
Sending you loads of love and luck 🧿
Manish
Nice structure of the advise