Certain Predictions

I’m tired of hearing the predictions.

The people who were certain Brexit would fail were certain Trump couldn’t get elected President.  These same people are certain of how the market will move going forward.  Paul Krugman pulled the fire alarm the night of the election when market futures were down huge saying the market would never recover.  Citigroup and Goldman Sachs predicted the possibility of every scenario except the one that happened (a market rally post-election).

These folks wear their authority like a crown and revel in lording it over the masses.  Perhaps once upon a time this authority derived from real, actionable knowledge, but today that crown has been pawned in exchange for pageviews, CNBC appearances, and perfect hindsight.  They are desperate for your cash, but even more desperate for your attention.  There is a fear underlying the headlines.  It is not fear of political change or market turmoil.  It is fear that one day soon you will realize that they no longer hold a monopoly on truth and that you will turn away from their manufactured crisis reporting.  They cry out, “But you need us!”  We will reply with silence.

The only thing I’m certain of is that predictions are bullshit.  The more certain the prediction, the harder they are trying to sell you something.  So many of these dinosaurs model market movements out to two decimal places.  The focus for honest investors is on what moves the number to the left of the decimal for them personally, things you can control like taxes and expenses.  You can’t control who Trump puts on his transition team or whether he alerts the press to his dinner plans, but you can recognize the difference between actionable information and manufactured outrage.

Invest in such a way that you don’t need to predict the future in order to succeed.  This starts with a financial plan based on an honest assessment of not only your goals and risk tolerance, but also your likelihood of sticking with the plan when there is short-term disruption.  Harry Markowitz, the guy who won the Nobel Prize for his work on Modern Portfolio Theory, doesn’t invest using his own sophisticated model, “Instead, I visualized my grief if the stock market went way up and I wasn’t in it — or if it went way down and I was completely in it. My intention was to minimize my future regret.”  His portfolio is 50% stocks and 50% bonds instead.  It reminds me of the difference between knowledge and wisdom: knowledge is knowing a tomato is a fruit; wisdom is not putting it in a fruit salad.

It’s easy to ignore fear peddlers today while the market is up.  The real challenge is to build a portfolio you can stick with when the market is down and the experts are howling for you to do something, anything.  As if they have the slightest idea of who you are and what you want to accomplish.