The four events that end it

Everything in this course so far has been about accumulation going well or badly. This lesson is about it stopping.

Four events end a financial position outright. They are unrelated to each other, they are all individually unlikely, and the defence against each one is a completely different kind of thing — which is why a household can be well defended against one and wide open on the other three.

Why judgement is not the defence against the first two

Track 12 took apart how a pitch works. The part worth carrying into this track is the timing: these approaches are constructed to arrive when your judgement is at its worst, and the people running them are considerably better at their job than you are at spotting it, because they do it every day and you meet it twice in a lifetime.

An urgent request, arriving at a bad moment, from something that looks like a source you trust, with a plausible reason for the hurry. Being clever is not a defence, and the belief that it is happens to be the single best predictor of who gets caught.

What does work is a rule made in advance that does not require judgement at the moment of the attack. A waiting period. A second person. A callback on a number you already had. These work precisely because they do not depend on how the request looks.

What would you do

A message arrives during a busy afternoon, apparently from the institution holding most of your money. It says a transfer has been attempted from your account and asks you to confirm your details on a page it links to, or to call a number in the message.

The details in the message are correct: your name, the last digits of the account, a recent transaction. The tone is calm and the page looks exactly right.

Optimising for

Never losing a large amount to a request that turns out to be false, accepting some inconvenience on the requests that are genuine.

You cannot know

• Whether the message is genuine, which cannot be determined from the message
• How the sender obtained the correct recent transaction
• What is actually happening to the account right now
• How much time you really have before anything is decided

Choose an option

Call the number in the message and confirm the details with the person who answers.Do nothing with the message. Open the institution independently, by a route you already had, and check the account there.Examine the message carefully for signs it is false, then act on your conclusion.Ignore it entirely, on the grounds that these are always false.

The third and fourth

Catastrophe is the one with an existing market. A liability claim, a fire, a long illness — these are severe, unrelated to your other risks, and transferable for a price. The previous lesson was about doing that well. The failure here is almost always a gap rather than a bad decision: a cover that was set at the right level eleven years ago, or a risk nobody realised they were carrying.

Rupture has no market and no product. A partnership ends badly, a marriage ends, an inheritance is disputed, a former employer makes a claim. The distinctive feature is that the money does not disappear — it is redistributed, usually after a long and expensive argument about what was agreed.

The defence is documents written while everybody is on good terms, which is exactly when writing them feels unnecessary and slightly insulting. That is the whole difficulty: the cheapest moment to defend against a rupture is the moment at which nobody can imagine one.

What would you do

Two friends have been running a small business together for two years. It now supports both of them and holds about 60,000 in the account.

There is no written agreement. Ownership was described once, in a conversation, as roughly half each. One of them has put in more money; the other has put in more time.

Optimising for

Protecting both people's position if the relationship ends badly, at the lowest cost to the relationship now.

You cannot know

• Whether the two remember the original conversation the same way
• What either would want if one of them wanted to leave in three years
• Which of the contributions the other genuinely regards as larger
• What happens to the business if one of them is unable to work

Choose an option

Leave it. Raising it now suggests you are expecting a problem.Write down what you both already believe — shares, roles, what happens if one leaves — and both sign it.Take the money out of the business and hold half each personally.Agree verbally to sort out the paperwork when the business is larger.

Check

Which of the four events is most often left completely undefended?

Choose one answer

Rupture, because the defence has to be built while everyone is on good terms and feels unnecessary at that momentDeception, because everyone believes they would spot itTheft, because security is technical and most people do not understand itCatastrophe, because the events are too rare to plan for

Check answer

Worth remembering

• Four events end a position: deception, theft, catastrophe and rupture, and each needs a different kind of defence.
• Deception and theft are defended by process rather than judgement, because they are timed for when judgement is worst.
• A rule that works does not require you to assess the request: never act through a channel the request supplied.
• Catastrophe is the one with an established market, so its failures are usually gaps rather than absent defences.
• Rupture redistributes rather than destroys, and its only defence is a document written while everybody is still on good terms.