My Christmas present from my niece Deb was a book of recollections by various people who attended the 1969 Woodstock music festival. One recurring theme was that attendees had no idea what the event would eventually become. That was certainly true for me and my girlfriend (now wife). We went in order to hear her (then) favorite band but I have a much clearer memory of an outstanding performance by the British blues band whose name provides the title for today’s article.

A look back at an iconic occurrence like Woodstock or other historical event provides a chance to obtain insights that simply weren’t available as it unfolded. Ten years into the new millennium, I think it might be instructive to reflect on parts of the past decade. Perhaps we can learn something that could help us prepare for the future.

The year 2000 brought the end of the dot.com stock bubble. In the late 90’s, immense amounts of money were raised through Initial Public Offerings (IPOs), which allowed individuals to invest in new  tech companies. Unfortunately, that money was raised in support of a very few really good ideas. Among those enterprises which burned through their cash and disappeared were Webvan, Boo and Etoys (all ending in .com). Some of the successful companies include Google, Amazon and The Learning Company. Since many millions of dollars were lost, it seems that predicting the winners wasn’t as easy as people hoped. Because of the long odds against making money in IPOs, we continue to suggest that our clients avoid them.

Of course, 2001 was the year of the World Trade Center disaster, something so out of the realm of possibility that no one could have planned for it. Yet, the reason most of us maintain at least some insurance coverage is that we find it prudent to anticipate that something might go wrong, without having to know exactly what that might turn out to be. Fire, flood or terrorist attack, insurance is almost always available and we believe regular insurance reviews are simply part of good planning.

In 2001, actual US government spending was about $1.9 trillion. For 2011, it is expected to be about $3.8 trillion. This doubling is due, at least in part, to the cost of the beefed-up Department of Homeland Security and the various wars in which we are engaged. Such spending requires that the US borrow money, building up deficits. These have been with us for years but few elected officials are courageous enough to face them and make the difficult decisions required to reduce or end them. Since most politicians seem primarily interested in getting reelected, I doubt if deficit spending will be dealt with anytime soon.

I have seen recent articles which declare the first ten years of the 00’s to be the “lost decade” for investors since the S&P 500 ended 2009 about where it began 2000. That has certainly made things difficult for many investors, although some of our asset management clients have done better. We recently completed a review for the couple who have been our clients longest. They actually did quite well from 2001 (when we began managing their money) through 2009. Although we are not allowed to advertise our results, they prove, at least to us, that asset allocation does its job of providing a hedge against the unexpected.

Past Secretary of Defense Donald Rumsfeld and I have little in common but I do appreciate his bringing a little known concept from game theory (one of my interests) into the public eye. At a press conference in 2002, he made this statement: “ …There are known unknowns. That is to say, there are things that we now know we don’t know. But there are also unknown unknowns. These are things we do not know we don’t know.” This is a slightly obscure but extremely valuable insight, one which is critical to the financial planning process. Whether planning for peoples’ lives or structuring their investment accounts, we always consider the “known unknowns” such as interest rate changes and adjustments in relative currency values. We know those are going to change and try to plan for them, even though we have no way to know just how they will change. To do a truly effective job for our clients, we must also attempt to plan for the “unknown unknowns”, those unpredictable events like floods, earthquakes, terrorist incidents and recessions. It is our intention to be able to report to our clients in 2020 that we have helped them successfully navigate past both of these types of risk.