A bicycle has to keep on moving to stay upright. A table does not have to move to stay upright, and only a severe event will upend a large table.

I developed this analogy back when I was a corporate bond manager, because there were some companies that would only stay afloat if they kept moving, i.e., if operating cash flow continued at its projected pace. That is bicycle stability; they have to keep pedaling. There were other companies that could survive a setback in earnings, and even lose money for a time, and the debt would still be good. That is table stability.

Need I mention that in a crisis, the equity of companies with table stability typically fall less than those with bicycle stability?

I think that it is incumbent on every portfolio manager to look over his portfolio, and ask what companies that they own would not be able to survive if they were not able to raise capital for two years.

My current main economic concern is that inflation in the developing world, particularly China and India, will lead to their central banks to overshoot on policy, and cause a drop in global aggregate demand. Inflation is accelerating, and money supply is not slowing. The excess liquidity is not finding its way into goods prices as much as into asset prices.

This portfolio review will not protect you from loss, but it will protect you in relative terms in a crisis. You won?t be hurt as much.