Burn Your Boats? - The Principle of Risk - History of Succession

Born into the royal family of Gabon, Gaspar Yanga was captured and enslaved on the Nuestra Señora de la Concepción sugarcane plantation, a fate that would break many but only fueled his indomitable spirit. Around the year 1570, Yanga led a group of enslaved Africans in a daring escape to the highlands near Veracruz, Mexico. They established a small colony, or "palenque," isolated enough to protect its inhabitants there. For over three decades, this community thrived partly by raiding caravans along the Camino Real, the Royal Road between Veracruz, and Mexico City (Curto and Soulodre-LaFrance).

The audacity of Yanga and his maroons caught the attention of the Spanish authorities. In 1609, they decided to undertake a military campaign to regain control of this territory. Led by the soldier Pedro González de Herrera, about 550 Spanish troops set out from Puebla. The maroons were an irregular force of 100 fighters with some firearms and 400 more armed with stones, machetes, bows, and arrows.

Yanga, who was quite old by this time, used his troops' superior knowledge of the terrain to resist the Spaniards. He aimed to cause them enough pain to draw them to the negotiating table. Yanga sent peace terms via a captured Spaniard as the Spanish troops approached. He asked for a treaty akin to those that had settled hostilities between Indians and Spaniards: an area of self-rule in return for tribute and promised to support the Spanish if they were attacked. In addition, Yanga said this proposed district would return any slaves who might flee to it.

The Spaniards refused the terms and went into battle, resulting in heavy losses for both sides. The Spaniards advanced into the maroon settlement and burned it. However, the maroons fought fiercely and were well accustomed to the surrounding terrain. The Spaniards could not achieve a conclusive victory.

The resulting stalemate lasted years; finally, the Spanish agreed to parley. Yanga's terms were agreed to, with the additional provisos that only Franciscan priests would tend to the people and that Yanga's family would be granted the right of rule. In 1618, the treaty was signed, and by 1630, the town of San Lorenzo de los Negros de Cerralvo was established.

Yanga's legacy was immortalized when he was named a "national hero of Mexico" and "The first liberator of America" ("El Primer Libertador de América").

Why was the son of an African royal family battling for his freedom from Spanish overlords on territory that, just a century earlier, belonged to the Aztec Empire? The answer can be traced back to a fundamental principle of succession: Risk.

The sugarcane plantation, Nuestra Señora de la Concepción, where Gaspar Yanga was enslaved, was established by Hernán Cortés. In the early 16th century, two worlds collided when Cortés, a Spanish conquistador, set his sights on the Aztec Empire, ruled by Moctezuma II. The contrast between the two leaders' approaches to risk and opportunity would shape the entire world's destiny.

Cortés was a man who thrived on risk. He defied the governor of Cuba, Diego Velázquez de Cuéllar, by ignoring the cancellation of his expedition to the Mexican mainland. Cortés was not a man to be deterred; he saw opportunity where others saw danger. Upon landing, he famously burned his ships, leaving retreat as not an option[1].

He was strategic, forming alliances with indigenous groups like the Tlaxcalans, who were enemies of the Aztecs. His relationship with La Malinche, a native woman who served as his interpreter, was invaluable. When emissaries were sent to arrest him, not only did he defeat them, but he also enlisted them in his army. Cortés was a man who turned every obstacle into an opportunity.

Moctezuma, on the other hand, was paralyzed by indecision and superstition. Faced with omens and prophecies, he hesitated, allowing Cortés to advance. Even when Cortés and his men were within the gates of Tenochtitlan, Moctezuma failed to act decisively. His hospitality towards the Spaniards, driven by fear and indecision, would prove to be his downfall.

Cortés seized Moctezuma and took control of Tenochtitlan, eventually leading to the fall of the Aztec Empire. Moctezuma's hesitance and Cortés' audacity had set their fates in stone. The Aztec Empire was annexed to Spain, leading to the formation of New Spain, over which Cortés was appointed Governor. The wealth of the Aztec Empire would flow into the coffers of the Hispanic Monarchy.

The Spanish triumphs in conquering the Americas seemed nothing short of miraculous. Despite being outnumbered, these small bands of conquistadors succeeded in toppling some of the world's most formidable civilizations. It was like they had an unseen ally aiding them in their quest. Indeed, they did: germs. Over the subsequent century, the population in the Americas would drastically decline, prompting the Spanish to import African slaves to labor in their newly acquired empire.

Hearing of this crisis, Thomas Gutierrez, originally from Origuela in Valencia, left his family forever and found his way to San Hipólito de Oaxaca. While there, he mastered the language of the Mistecs and became a spiritual guide for them. However, he also witnessed the horrors of the forced silver labor camps of the Spanish. Father Thomas Guiterrez couldn’t resist the opportunity when he was informed of other people, the Igorots, who had rich gold mines in the mountains of Central Luzon.

He asked to be transferred to the closest area to the Igorot people with the Pangasinan natives, who aptly named him "Thunder" for his stirring sermons against vice. Yet, his unflinching bravery in the face of danger made him a living legend. When over four hundred armed Zambales Indians attacked the village of Managuag, Gutierrez's faith served as an invisible shield, protecting his community from harm. (Blair and Robertson)

Don Luis Perez Dasmarinas sought to emulate Hernán Cortés when he arrived in Ituy in 1591. Upon their arrival, the scene was promising: young children frolicked naked, adorned with gold necklaces, while their parents wore gold bracelets up to their elbows (Scott). Despite three attempts, Dasmarinas failed to subjugate the people of Ituy.

After averting disaster in Managuag, Father Gutierrez continued to serve, devoting his days to the community’s spiritual and physical fortification. However, it was in the province of Ituy, the Igorot kingdom, where he truly broke new ground. Realizing the cultural complexities of the region, he adopted an innovative approach to evangelization. His sermons were dialogues that included local traditions, making his religious tenets relatable to the native people of Ituy.

In 1633, Father Thomas Gutierrez fasted for many days, causing him to become ill. In his weakened state, he fell from a precipice. It was written of him in the provincial chapter, “in the province of Ytui, father Fray Thomas Gutierrez ended his days, an aged priest and father, most observant of the rules of the order, severe to himself and most gentle to others. He labored in this province for the good of souls for five and thirty years…” (Blair and Robertson). At the age of 73, Father Thomas Gutierrez died in the land of a people who were not his own. A life dedicated to a clear purpose allowed Father Gutierrez to live an exceptional life.

Remarkably, for the next 350 years, the Spanish would neither manage to subdue the Igorot people nor locate their gold mines[2].

Risk is not just a modern-day concept; it's a foundational principle of succession that has been deeply ingrained in the human psyche since the dawn of time. Our ancestors survived and thrived by effectively managing risks, whether to hunt a dangerous animal or choose the right time to migrate. This ancient wisdom is still alive, often manifesting as a "gut feeling."

Our subconscious mind is a powerful tool in risk assessment. It operates behind the scenes, constantly scanning our environment and experiences to identify potential hazards. Once a risk is detected, our internal machinery kicks into high gear: analyzing possible courses of action, evaluating the situation based on past experiences and current conditions, formulating a plan, and then continually monitoring the risk as circumstances evolve. This intricate process happens in the blink of an eye, guiding us through life's challenges and opportunities. Understanding and harnessing this innate ability to manage risk is essential for anyone looking to successfully navigate the complexities of succession, whether passing down a family business, transferring property, or ensuring the continuation of a legacy.

Burning the Boats

Hernán Cortés was paradoxically poor at conventional risk management, yet this was his greatest strength. Hence, that is why he is known for burning his boats. He frequently bypassed the standard procedures for assessing the best course of action, but this unconventional approach often worked to his advantage. While others were planning their next moves, Cortés was already two steps ahead. His near absence of fear gave him a unique edge—until it didn't.

On the night of June 30 to July 1, 1520. Hernán Cortés and his forces, along with their indigenous Tlaxcalan allies, found themselves besieged in the palace of Axayácatl in Tenochtitlan. With dwindling supplies and mounting pressure, Cortés decided to escape towards Tlacopan (now Tacuba) at midnight. However, their retreat was discovered by an elderly Mexica woman, who alerted the Aztec warriors. Soon, thousands of Aztec warriors surrounded the Spanish forces, and the lake around Tenochtitlan was filled with canoes of armed natives. The Spanish and their allies were attacked from all sides, leading to heavy casualties.

The aftermath was devastating for the Spanish. According to accounts, they lost over 600 men, and almost all their artillery was destroyed. The Tlaxcalan allies also suffered massive losses, with only a few hundred surviving. It is said that much of the treasure looted from Moctezuma's palace was also lost during this hasty retreat. The event profoundly impacted both sides and is known to the Spanish as Noche Triste, or "Sad Night" (Vázquez Chamorro).

All those who have achieved greatness have often sidestepped what seemed prudent through the lens of risk management. My father frequently shared a quote from my great-grandfather, G.P. Sanders: "Let's do it, even if it's wrong." I embraced this philosophy when I chose to start my law firm rather than seek employment. However, it's worth noting that this approach has led to more failures than successes in my journey.

When Not to Burn Boats

Gaspar Yanga excelled in risk management. The odds of fighting for his freedom were long, but the potential reward was invaluable. Yanga seized the opportunity to secure his people's freedom by recognizing the crucial moment when not to risk it all. Like all astute individuals, he sensed when the tide was turning against him and chose to negotiate only when the terms were favorable. Yanga serves as an exemplary lesson in the nuanced principle of knowing when to take risks and when to abstain.

Today, major hedge funds vie for profits in the world's most cutthroat marketplace: the New York Stock Exchange. Skilled money managers leverage human instincts to outmaneuver their competition. Fortunes are now made and lost not on battlefields but within the high-stakes financial trading arena. They are masters of when not to burn your boats.

Every morning the market is open, you can tune into the Macro Show on Hedgeye.com, where Keith McCullough will attempt to educate you on the complexities of modern investment strategies, even with the vast amount of resources and knowledge he has obtained through decades of investing. He never overexposes himself and preaches this to listeners to be patient for the opportunities that will present themselves over time.

There is Always an Enemy At the Gate

Even after Aztec Warriors defeated Hernán Cortés on Noche Triste, they had no idea their greatest enemy was already among them. "Huey cocoliztli" (the great pestilence) plagued Tenochtitlan. It was probably enteric fever, a horrible disease characterized by high fever, headaches, bleeding from the nose, eyes, and mouth, and death in a matter of days once the symptoms appeared. Typhoid is an example of an enteric fever[3]. Due to the Aztec priests' inability to treat it effectively, the people believed that their gods were angry and had abandoned them, which had a significant psychological impact when Hernán Cortés and his allies returned to overthrow them.

When overwhelmed with fear, humans often resort to fight-or-flight mechanisms. Moctezuma thought he could mitigate risks by appeasing his enemies, but his inaction only exacerbated the situation for his people. Similarly, many individuals today leave their hard-earned wealth in savings accounts, unaware that an invisible force—namely, inflation—is eroding their resources.

Inflation is a complex economic phenomenon that significantly threatens your prosperity. It occurs when the demand for goods and services outpaces supply, leading to a general price increase. Various factors can trigger inflation, such as supply shocks in essential economic inputs like energy or an increase in the money supply. Like the Aztecs, we have an enemy at our gate, and in later chapters, we will reveal the rules to help you deal with these issues.

Prudence in Risk Management 

Risk is a foundational principle of succession. As we plan for the future, it's crucial to determine the level of risk we're willing to assume. Identifying our objectives and the resources needed are essential steps in this process. The question of whether to "burn our boats" or keep them as a safety net is one we must all confront. Father Thomas Gutierrez serves as an exemplary model of a well-balanced legacy. At times, he took the bold step of burning his boats, leaving home never to return. Yet, he also knew when to settle down and provide stewardship to those under his care. Ultimately, he had a clear goal: to assist the people of Ituy, and he succeeded in doing just that.

[1] Cortés took strategic measures to deter future desertions by eliminating the possibility of retreat. While conversing with a group, some of his trusted officers discreetly informed him that shipworms had damaged several ships and were no longer seaworthy. Montejo even reported that one ship had already sunk spontaneously. Faced with this public revelation and seemingly left with no alternative, Cortés commanded that all salvageable materials be removed from the ships and placed onshore. The notion that the ships were burned first appeared in the introduction to a book by Cervantes de Salazar, published in 1546. Juan Miralles Ostos (2001). Hernan Cortes. Inventor of Mexico (2nd edition). Tusquets. ISBN  970-699-023-2, p.112.

[2] An oral legend among the Ifugao people tells of a white man who cautioned them about the Spanish lust for gold. Heeding this warning, the Ifugao people constructed the Banaue rice terraces.

[3] “The cause of this epidemic has been debated for over a century by historians, and now we can provide direct evidence through the use of ancient DNA to contribute to a longstanding historical question,” co-author Åshild Vågene of the Max Planck Institute. (See https://bigthink.com/health/dna-analysis-may-have-finally-revealed-what-killed-15-million-aztecs/ extracted November 1st, 2023)