Emu Wars

n 1711, amidst the turmoil of the War of the Spanish Succession, the British government was facing a mountain of debt. A creative solution was proposed: the creation of the South Sea Company. This entity was granted a monopoly on trade with South America, and in return, it assumed a significant portion of the national debt.

The South Sea Company appeared to be the golden goose of the British economy. Stories of the riches to be garnered from South American trade circulated, fueling an investment frenzy. The company's shares soared in value, not due to its trade profits – which were meager, since Spain still controlled most of South America – but because of speculation. This led to an economic bubble.

Everyone, from aristocrats to fishmongers, bought into the company, often investing their life savings or even borrowing heavily to buy shares. However, in 1720, the bubble burst. It became clear that the anticipated trade profits were largely illusory. Share prices plummeted, and countless investors faced financial ruin.

This South Sea Bubble serves as a timeless example of the perils of speculation and overconfidence in investing, highlighting the principle: do not take on excessive risk.

Our next tale leaps forward in time to 1932, in the sun-scorched lands of Western Australia. With the Great Depression wreaking havoc on the Australian economy, wheat farmers were under significant economic strain. To make matters worse, they were facing an invasion. Not from enemy nations, but from a flightless bird native to Australia: the emu.

Thousands of emus migrated from the interior to the coastal regions in search of food, devastating wheat fields in the process. Desperate farmers appealed to the government for help, leading to the declaration of what would later be known as the Great Emu War.

In an extraordinary decision, the Australian government deployed a small military force armed with machine guns to combat the emu menace. The aim was to eradicate the emus and protect the farmers' crops. But the emus were not so easily defeated. They scattered when fired upon, their thick feathers often shielding them from bullets. After several weeks, the government ceased operations, having made only a small dent in the emu population.

The Great Emu War was a failed gamble that cost the Australian government financially and reputationally. The decision to use military force to combat a bird proved ill-advised, serving as a reminder of the need for a more thoughtful and balanced approach to problem-solving and risk management.

The South Sea Bubble and The Great Emu War, although different in nature and separated by centuries, illustrate the consequences of failing to manage risk effectively. In both cases, the decision-makers acted on incomplete information and failed to consider alternative options, leading to catastrophic outcomes.

As an investor, it's crucial to resist the allure of "sure things" and potential windfalls. The South Sea Bubble shows the dangers of speculative investing and putting all your eggs in one basket. Diversification across different types of investments can help to spread risk and guard against severe losses.

The Great Emu War, on the other hand, underscores the importance of carefully evaluating all potential outcomes before making a decision. A well-thought-out strategy, rather than a knee-jerk reaction to a problem, is more likely to lead to a successful outcome.

In summary, the principle of avoiding excessive risk is not just about preserving your wealth. It's about making informed decisions, balancing potential gains against possible losses, and always having a plan B. History provides us with many examples of what