The Certainty of Uncertainty
It’s 2020. We have entered the twenties. The tens never quite sounded right so it feels good to be in a decade with a little ‘swagger’ to it.
My year-end newsletter will get into more details about the last year, and the last decade of returns. Look out for it next week.
At this time of year we see a lot of predictions – predictions about what the market will do this year, what bond yields will do, where interest rates will go, how currencies will move, how much the economy will grow (or not).
We want someone to tell us what happens next. It’s in our DNA. And there are an awful lot of intelligent people out there who will feed on this human desire and provide those predictions. The problem is that they are almost always wrong.
Bob Seawright recently wrote an article about forecasting and listed 12 different “experts” who made huge errors in their forecasting over the past decade:
In 2010, noted economist Nouriel Roubini told CNBC that stocks were likely to continue their aggressive decline and shed another 20 percent in value as the world economy weakened. “From here on I see things getting worse.”
In 2011, Gluskin Sheff economist David Rosenberg said another recession was coming, and soon, and that the S&P 500 would test the 1,000 level (it didn’t and is now well past 3,000).
Also in 2011, Harry Dent predicted that the Dow would fall below 10,000 in the near term before crashing to around 3,000 in 2013, levels not seen since the early 1990s. Those levels still haven’t been seen, while the Dow approached 29,000 as 2019 ended.
In 2012, the British economist Andrew Smithers asserted that “U.S. equities are 40 to 50 percent overpriced.”
In 2013, Peter Schiff called for a crash that would blow the 2008-2009 financial crisis out of the water.
In 2014, Henry Blodget expressed his expectation for a 40-55 percent crash.
In 2015, then presidential candidate Donald Trump warned of a looming economic recession and a stock market bubble.
In 2016, Paul Farrell of MarketWatch called for a 50 percent market crash: “a crash is a sure bet, it’s guaranteed certain.”
In July of 2016, Jeffrey Gundlach, the chief executive of DoubleLine Capital, advised investors to “sell everything. Nothing here looks good.” He also said, “As sure as night follows day, passive is going out of favor.”
Robert Kiyosaki, author of Rich Dad Poor Dad, predicted that we would witness the worst market crash in history in 2016: “we’re right on schedule.”
In 2017, Marc Faber claimed that “We’re all on the Titanic.”
Also in 2017, Jim Rogers, who formed the Quantum Fund with George Soros, said, “A $68 trillion ‘Biblical’ collapse is poised to wipe out millions of Americans” and “this is all going to end very, very, very badly.”
In 2018, Scott Minerd, Chairman of Investments and Global Chief Investment Officer of Guggenheim Partners, forecast a 40 percent retracement. He saw the markets as being “on a collision course for disaster.”
A year ago, Mark Yusko called for the immediate start of “one of the largest recessions we’ve ever had…There’s no stopping it.”
This is Bob’s sample. You could fill pages and pages with these cataclysmic predictions.
To put all of the above in context, the last decade saw US stocks compound at 13.5% per annum. The S&P 500 was up nine out of ten years (2018 was the down year). The US didn’t experience a single recession in the 2010s.
Predictions will never go away – as Bob Seawright writes, ‘it’s part of the gig’. Wall Street is built on this. The key for you is to ignore it all. It’s noise that needs tuning out.
As Peter Lynch once said, ‘far more money has been lost by investors preparing for corrections, or trying to anticipate corrections, than has been lost in corrections themselves.’
Portfolios should never change based on a headline. Portfolios should always be built to service a plan, and they change when the plan changes. Headlines don’t know your plan. They don’t know your goals or your dreams or your fears.
There are so many things I wish I could know. My job would be so easy if I could predict the future. But I can’t. Nobody can. I have educated guesses based on the path of history, but they are still guesses.
“We have long felt that the only value of stock forecasters is to make fortune-tellers look good. Even now, Charlie (Munger) and I continue to believe that short-term market forecasts are poison and should be kept locked up in a safe place, away from children and also from grown-ups who behave in the market like children.”
What I can do is help you prepare for uncertainty, prepare for the unknowns in life. When the sky seems to be falling down, I can be there to guide you and counsel you. When you need money, I can make sure there is a place you can get it. I can make sure you are ready for life and you are ready for death. I can make sure you benefit from the markets going up, but that you stay level-headed when they go down.
Certainty has an allure, but it’s like a mirage. The closer you get to it, the further away it will seem. Being prepared for uncertainty is invaluable.
As the famous serenity prayer says “God, grant me the serenity to accept the things I cannot change, courage to change the things I can, and wisdom to know the difference.” That’s a great place to start a new decade.
Georgie
georgie@libertywealth.ky