Predictions are tough
A famous quote from one of the great philosophers of our time, Yogi Berra, was, “Predictions are tough, especially when it involves the future.” I find myself thinking about that a lot lately as people ask me what is going to happen with the economy, interest rates, investments, etc. With all the uncertainty in the world now, I almost feel like walking around with a name tag that says, “I don’t know.” As I write this in mid-March, the uncertainty is off the chart.
I don’t know if we’re in a bear market. I don’t know if interest rates will go higher. I don’t know if crypto will go lower or if gold will go up. I guess I don’t know much of anything. Of course, I can offer a somewhat educated opinion, but neither I nor anyone else really knows.
If you go to financial conferences or watch interviews online or on TV, you get the impression that these people know a lot. They know everything. That is because certainty pays. There is usually some guy or gal with impeccable credentials who speaks like the voice of God. This is partly because he or she has been right in the past. They go through life with the certainty of being right, and it is that certainty in the way they talk and the way they carry themselves that has attracted legions of followers. They communicate in such a way that leads you to believe there is no possible scenario where they are wrong.
It’s a valuable skill. If someone were to ask me if I thought interest rates would go up or down, I would likely say that rates “could” go up for these reasons, and rates actually “could” go up for those reasons. Maybe. And while I have an opinion on the direction of interest rates, it is little more than an educated guess. I simply don’t know.
Some of you might remember that for many years I wrote an annual predictions column in January each year, and then graded myself on how I did in the next January column. This is something that very few writers do because there is almost no chance of being consistently right and they don’t want to put themselves out there like that. But I did it anyway, and it was fun to do. In 2009, I hit 100 percent of my 10 predictions. I should have quit right there and never written again because there was nowhere to go but down. I think I hit 50 percent the next year and was about 70 percent for many of the other years. I finally stopped doing it because the world and markets became so crazy that it was no longer a prediction and became just guessing. We don’t know anything for sure.
So, if you are intellectually honest about the fact that you know very little, how do you obtain conviction in the markets? Conviction is when you are really sure something is going to happen in the future. Success in investing rests partly on your ability to predict the future.
If you are contemplating buying a stock, you have to reflect on how certain you are that events will go the way you think they will. You also have to consider how things might go wrong. The more knowledge you have, the better your ability to predict the future.
On the other end of the spectrum are friends, acquaintances, and TV news programs. They may or may not know, but they act as if they do. They have the certainty of the so-called experts. There is a fine line between conviction and faith. Conviction is belief with knowledge. Faith is belief with no knowledge. There is a place for faith in our lives, but there is no place for faith in the stock market.
Implicit in the statement “I don’t know” is an admission of humility. There is not much of that going around these days. Everywhere I go, I see people who are pretty darn sure about their stocks. I wish I shared their conviction. It’s the main reason I don’t do prediction columns anymore. I am just not that sure.
Once you learn the magnitude of what you don’t know, the world becomes a very scary place. But as time passes, it becomes a very reassuring place because you learn that everyone is as clueless as you are, and the markets will make fools of us all at some point. Perhaps it is the accumulation of these indignities over time that gives me the humility I have today. Humility is a necessary but not sufficient condition for success in the markets. It’s called risk management. Thanks for reading.
The opinions voiced in this material are for general information only. Investing includes risks, including fluctuating prices and loss of principal.
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About Nick Massey
Nick Massey is President of Massey Financial Services in Edmond, OK. Nick can be reached at www.masseyfs.com. Securities offered through LPL Financial, member FINRA/SIPC. Investment advice offered through Householder Group Estate and Retirement Specialists, LLC, a registered investment adviser. Massey Financial Services, LLC and Householder Group Estate & Retirement Specialists, LLC are separate entities from LPL Financial.