Predicting the future
How many times have you seen articles, videos etc of people making predictions for the stock market? People do it all the time- professionals whose entire career is built on doing it, as well as people in the pub who have no idea whatsoever.
This is one of the simpler topics to cover: nobody can predict the market, or stocks. Nobody, ever.
If people tell you they can, they either don’t know enough about it to understand, or they do understand and they’re trying to make money by selling you a prediction.
Humans hate uncertainty, since the dawn of time we’ve longed for and been drawn to people who claim to be able to tell us what’s going to happen. These people began as wizards and royal advisers, and now they’re called economists and strategists.
Many people make a lot of money serving our innate need to know what’s going to happen. We’re drawn to these people who tell us confidently.
The problem is, it’s all nonsense. Market predictions are as much use as horoscopes. But oddly you can’t get a job at Goldman Sachs being paid hundreds of thousands of pounds for writing horoscopes.
What is the stock market? Hundreds of individual companies.
How many factors affect a single company? Thousands. The management team, sales, the economy, interest rates, their strategy, their competitors, the weather, etc etc
So to predict the market, you need to predict thousands of individual variables for hundreds of companies. But wait! The market is just the ‘perception’ of all of those variables… So you’ve got to not only predict all those hundreds of thousands of variables, but also predict how thousands of market participants and algorithms will react to them.
The fact that anyone even thinks they can do that is laughable.
And we haven’t even considered yet the outside impact of ‘black swan’ events that totally dwarf everything else. How many people do you know predicted 9/11, or COVID?
Don’t waste your time trying to predict the market.
And don’t waste your time listening to anyone who is telling you they can do it.
So what do we do if we can’t predict anything?
It all sounds really risky… But accept that you can’t predict, and instead prepare (words of Naseem Taleb).
Our investment approach should focus on being prepared for a variety of outcomes. We don’t know which will occur, and frankly it doesn’t matter. We’re prepared for all of them.
Don’t predict, prepare.