24 March 2011

The first step in the risk management process is to acknowledge the reality of risk. Denial is a common tactic that substitutes deliberate ignorance for thoughtful planning.

-Charles Tremper

In the process of moving out of New York, I got a reminder how painful it is to rely on a liquid market that turns out not to be so liquid. I was boxing and shipping most of my stuff, but planned on selling my furniture on craigslist. I gave myself a week to put my furniture online, and assumed it would be more than enough time to sell severely discounted furniture. It was not. With only two days to go before my apartment needed to be completely empty, 80% of my furniture was unsold. I had discounted the furniture to almost nothing, did multiple ads with new copy, new images and new pricing, but nothing worked. On the day before my apartment needed to be empty, I was forced to pay a junk company to pick up and haul away my things.

This turnaround only cost about $500, but it was a good reminder that markets can get suddenly illiquid and always at the worst possible time. I didn’t realize how much moving in an off-month and in the middle of the month would affect the amount of buyers.

Knowing what I know now, I should have tried to sell my furniture at the beginning of the month, when there were more people moving in and out of apartments.  However, I still don’t know if that would have compensated for moving in March instead of a peak month like June or July.

It worries me a bit, because this is the kind of mistake that is very easy to make over and over again. Although everything is clear in hindsight, it is impossible to predict when a market that normally works fine will suddenly no longer work. In the securities markets this mistake has been made many times with huge financial repercussions. When things go wrong, people demonize the financial profession, and everyone swears to be more vigilant in the future. Then, the market goes back to being liquid, people invest, and the cycle repeats itself.

The difficulty is that people need to invest and I need to sell my furniture, so even though there is a risk the market will fail, there aren’t many viable alternatives. I think this might be one of those risks that we are just stuck with.