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Uncertainty, forecasting and The Real Housewives – what they have in common

Uncertainty, forecasting and The Real Housewives – what they have in common

There is no dearth of writing on the current uncertainty in the world, markets, or the economy. I couldn’t read it all if I tried, but I’ve read a decent amount. Here are my thoughts on uncertainty as they relate to regular old investors with normal goals and objectives:

  • Pour gasoline on a pile of dry wood, light it with a match, and you will get a bonfire. That’s a known cause and effect…with limited, if not zero, variability in outcome.
  • Unlike the above, no one knows anything about the cause and effect of what’s happening in the world right now. You can’t assume any cause and effect based on historical precedence, because I’ll argue there is none.
  • You have no idea how something will turn out until it presents itself in the future. DUH.
  • There is too much randomness right now to predict what will happen tomorrow, this summer, next fall, or even next year. Acknowledging that is okay; ignoring that is not okay.
  • No one has access to any secrets – everything that is known, knowable, or even accurately assumable, is currently baked into the prices of all assets.
  • The way to make a return on investments is by putting money to work today based on unknowable things that will develop out in the future.
  • Most people know they can’t predict the future, but they experience difficulty with that logic.
  • People are dissatisfied with their inability to predict the future, so to satisfy themselves, they do it anyway…hence, forecasts. They make people feel good, especially if they feed into any bias.
  • Uncertainty can be mitigated by employing an unemotional process (or set of rules), but I’ve found if a process does not match an investor’s bias, they will eschew it.
  • A process can seem too simple or unsophisticated, which will lead investors to dismiss it as ineffective…yet they will still believe forecasts!
  • Uncertainty can lead to investors choosing to index or benchmark using an ETF. However, that game may be changing to favor active management if people want to avoid automatic investment in companies that will suffer in a new post-COVID economy.
  • Some investors are convinced of their forecast or thesis of the future yet lack the humility to define conditions for admitting when they are wrong.
  • More people should read Annie Duke’s book Thinking in Bets (already a classic in my mind) where she writes, “[Good poker players] embrace uncertainty and, instead of focusing on being sure, they try to figure out how unsure they are, making their best guess at the chances that different outcomes will occur.”
  • People gloss over probabilities…When the probability of being right is 90%, ten times in 100 will actually be wrong. Just ask the 2020 San Francisco 49’ers.
  • People, including me, hate saying “I don’t know” when in fact, it’s probably the most accurate and truthful answer to any question asking for postulation. There is a limit to what anyone can know and that even more true when something is truly unknowable.
  • Uncertainty is uncomfortable, but baseless forecasting is not a special potion to make it better.

Be careful what you do with forecasts. They are interesting and entertaining, but so is watching The Real Housewives.

Forecasts & Housewives MEME

Sometimes, things may seem obvious, but that’s the exact point at which you should question it. I’m firm in my conviction that the best solution to the uncertainty we are facing is identifying the time horizon you have for your investments and adjusting your exposure to risk accordingly.

Keep looking forward,

What’s Next?


Don’t be an “investi-guesser”

Don’t be an “investi-guesser”

On what rational planet does an investor (or trader) forecast yesterday that the S&P 500 would be up 1.5% today…

Important Disclosure Information

Please remember that past performance may not be indicative of future results. Different types of investments involve varying degrees of risk, and there can be no assurance that the future performance of any specific investment, investment strategy, or product (including the investments and/or investment strategies recommended or undertaken by Monument Wealth Management), or any non-investment related content, made reference to directly or indirectly in this blog will be profitable, equal any corresponding indicated historical performance level(s), be suitable for your portfolio or individual situation, or prove successful.

All indexes referenced are unmanaged and cannot be invested into directly. The economic forecasts set forth may not develop as predicted. Due to various factors, including changing market conditions and/or applicable laws, the content may no longer be reflective of current opinions or positions. Moreover, you should not assume that any discussion or information contained in this blog serves as the receipt of, or as a substitute for, personalized investment advice from Monument Wealth Management. To the extent that a reader has any questions regarding the applicability of any specific issue discussed above to his/her individual situation, he/she is encouraged to consult with the professional advisor of his/her choosing. Monument Wealth Management is neither a law firm nor a certified public accounting firm and no portion of the blog content should be construed as legal or accounting advice.

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David B. photo

David B. Armstrong, CFA

President & Co-Founder

Dave got into the industry when he discovered his passion for finance in his mid-20’s. He’s a combat veteran and served as an officer in the United States Marines Corps on both active duty and in the reserves, retiring at the rank of Lieutenant Colonel. While serving on active duty, Dave was unable to spend money on deployments, so he became a self-taught investor. Along with a few bucks cash as a bouncer, his investing performance grew to be good....

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