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About a week ago it occurred to me that I could probably double my net worth without increasing my risk. But I wasn't willing to pull the trigger because even though I could identify no risk, maybe I was missing something. It turns out that my plan would have worked, but I waited too long and probably missed window.

The investment idea was this: Sell most of my municipal bonds and buy stock in Wells Fargo bank. This was before the recent run-up in the stock market. The reason this seemed like a risk-free investment is that there were only two real possibilities for the future. Either the banks would become healthy, through government action or market forces, in which cases their stock would zoom, or the entire world would plunge into darkness and no investment would be worth anything.

Generally when you make an investment choice there is an opportunity cost. You always have to wonder if the investment you didn't make would have been better than the one you made. But in the case of banks last week, either they would go up in value, probably by a lot, or the entire economy would collapse and no investment would have value. So while there was a huge risk to investments in general, there was no risk in moving money into Wells Fargo stock. It was all upside potential with no additional risk.

I wonder if there has ever been a time when such a clear investment choice existed.
 
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Mar 24, 2009
if it makes you feel any better the world is still going to plunge into darkness and you're investments will still be wiped out - all we've done is push the date back a little (more) at the expense of more severity down the road...
 
 
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Mar 24, 2009
Actually there is a third possibility.

The government nationalised the bank and restructures it's debt and you lose everything.

Nick
 
 
 
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