What happens when the predictions are wrong?
Is it time to panic?
Is it time to ditch our strategy?
It’s a fascinating question because it cuts right down to the question of what it means to live in an uncertain world.
Humans are wired to dislike uncertainty. We were even taught crazy sayings enforcing the benefits of certainty, like “ A bird in the hand is worth two in the bush.” My kids shake their heads at the phrases that often come out of my mouth.
We like to assume a fair amount of (often unwarranted) certainty in the models and paradigms we use to make sense of the world around us.
We’re so attracted to certainty that when economic forecasts and reports come back with “surprises” (also known as being wrong), we tend to freak out. Especially when the news trumpets every weird bit of data like it’s a huge deal. Remember, the media are selling advertising, not simply providing news as a service.
Over the last few weeks and months, we’ve had a lot of “surprise” reports.
Job market surprises.
Housing market surprises.
Economic growth surprises.
Why are we so surprised?
In a year like 2021, the margin for error is greater than ever.
Predictions, forecasts, and expectations that are based on averages, trends, and other backward-looking methods are ill-equipped to handle the outliers and oddities of a year that’s unlike anything that has come before.
When in history has an entire global economy come to a screeching halt?
And then arthritically restarted with many creaks and groans. Think about getting up early in the morning after a long active stretch the day before. That kind of slow, painful movement,
To my knowledge, it’s never happened before.
Of course, the data is going to have surprises.
Most are probably going to get a lot of things wrong. Our job, first and foremost, is never to be REALLY wrong. Small losses never hurt long-term investors; big losses do.
I can’t wait for the best-sellers written about all the ways we could have done things better. You know the books with 20/20 hindsight about all of the things that were hiding in plain sight after both the pandemic and the recovery happened.
So, what does that mean for us?
Crystal balls are out of commission. As we come out of a worldwide pandemic, there isn’t enough historical data to use what has happened in the past as a roadmap. We have to look out a little further to determine who and what will ultimately be the winners when this is all said and done.
Surprise is the order of the day, the week, and the year. Get used to it.
Most models haven’t caught up yet (though that’s not stopping anyone from issuing very confident predictions via the financial media).
So, we’re being careful and looking out for the opportunities (as well as the hidden pitfalls) in these uncharted waters. We see many strong signs in the economy that are being overlooked by many in the investment community. This opportunity makes us feel optimistic for the second half of the year.
We’re cultivating patience, gratitude, and our ability to make good decisions with incomplete information. Having a solid investment plan based on your individual goals established in a written financial plan has never been more important. The noise, both in the investment and political environments, has never been louder. Having a solid plan and not overreacting to every short-term piece of data is critical.
Please have a safe and enjoyable July 4th. Independence Day commemorates the Declaration of Independence of the United States, on July 4, 1776. The Continental Congress declared that the thirteen American colonies were no longer subject (and subordinate) to the monarch of Britain, King George III, and were now united, free, and independent states.