We expect there will be a recession in the next decade, we have no idea when that will happen.
We expect that some of our investments won’t do well. we don’t know which ones. We forecast the weather will be sunny tomorrow.
There’s a huge difference between an expectation and a forecast in investing. An expectation is an high-probability acknowledgement of how things might happen. A forecast is a specific prediction. in investing, forecasts are dangerous. For example : the coronavirus.
Last week, Ray Dalio published a piece outlining what’s happened with past viruses throughout history ( from SARS to the Spanish flu ). We can expect China’s economy ( and many of the wonderful businesses that comprise it ) to recover. But we won’t even try to forecast when the worst is over. Those that make such forecasts are effectively gambling.
Similarly, if you’re thinking ” I expect the market to hit a correction in the next few months,” you’ll likely take actions in your portfolio to try to navigate around it. Those actions are the root of most bad investment decisions.
Don’t try to forecast things precisely in investing. instead, have expectations.
For instance, we expect Google to grow its earnings faster than the market over the next decade. We expect volatility along the way , and that’s okay.
Forecasted plans are overly precise and will be proven wrong with enough at-bats. Expectations , however help us navigate even the choppiest waters.
Nobody panics when things go according to plan.”
Heath Ledger (The Joker)
Happy Oscars Weekend
WEEKEND READS
Wealth is what you don’t spend (3 min read) https://www.collaborativefund.com/blog/gains/ “The world is filled with the financial equivalent of athletes who finish every workout with four Big Macs
The Next U.S President’s Impact on stock ( 5min Read).https://www.washingtonpost.com/business/economy/the-next-us-president-will-have-little-effect-on-the-stock-market-heres-why/2020/01/15/38ef35e0-37ad-11ea-bf30-ad313e4ec754_story. “There is no correlation between a successful candidate’s pro-business sentiments and subsequent market performance.”
Our Early Thinking on the coronavirus and pandemics ( 7min read). https://www.linkedin.com/pulse/our-early-thinking-coronavirus-pandemics-ray-dalio Bridgewater’s Ray Dalio on the coronavirus and its potential economic impact.
Michael Burry on the Financial Crisis ( 30 min video).https://www.youtube.com/watch?v=fx2ClTpnAAs. Throwback from the outsider who predicted and profited from America’s Financial armageddon.
A DETOUR
“The real problem of humanity is the following: we have Paleolithic emotions ; medieval institutions ; and god-like technology
E.O WILSON, sociobiologist and Pulitzer Prize-winning author
EXM 