No Crystal Balls – Just Peace Of Mind

I hope this finds everyone having a nice spring.

This past winter in Boston, we experienced record snowfall. Warm weather and flowers finally have arrived in New England, but over the past few months we were reminded again and again that we can not control events.

Just as the weather is uncertain and sometimes unpredictable, the market time and time again reminds us that economic and geopolitical volatility are constants and that outcomes cannot be predicted.

Our partners (clients and fellow professionals) often ask us our opinions about the market. We are happy to give our two cents but we always remind them that we do not have a crystal ball.

Economists and market strategy professionals are constantly trying to forecast what the future will bring. Unfortunately, we find that prognosticators are never in doubt but often wrong. For more on this reference the chart below illustrating the accuracy of forecasting, which we published initially in our blog, “ If We Had A Chief Economist We Would Have To Pay Them “.

Federal Reserve Bank of San Francisco - February 2015
Fed Forecasting

If investment forecasts predict outcomes as poorly as the chart above reflects, what should you do?

As you do with the weather, respect the fact that conditions can change rapidly.

Be prepared and stay broadly diversified. Don’t reach for returns. Keep focused on your long-term plan. Don’t be sold the hot investment strategy.

And remember the following very old saying: “I thank my fortune for it, My ventures are not in one bottom trusted, Nor to one place; nor is my whole estate. Upon the fortune of this present year: Therefore my merchandise makes me not sad.” Merchant of Venice – Shakespeare

In a nutshell, “don’t put all your eggs in one basket”.

Below are 10 additional thoughts that I think make good rules for successful long-term investing. If you have others, please send them along.

Fiduciary Wealth Partners – 10 Rules To Consider

  • Investing is not a competition – Invest for your goals and stick to your plan.
  • View risk in terms of evaluating the likelihood of, and your ability to handle, the permanent loss of capital – Risk is not the variation of returns or standard deviation.
  • Do not run with the herd – Be contrarian.
  • Be curious , understand the position of the person or firm producing the research and remember that many investment theories are, well, theories.
  • Be patient – True long-term investors often come in for the most criticism but produce the greatest good (thank you Sir. Keynes).
  • Avoid leverage – It can offer more upside but the risk of the loss of capital is often not worth the reward
  • Understand liquidity – It should always be placed at a premium.
  • Don’t forget taxes – Many great sounding strategies don’t factor in the impact of Uncle Sam (see our past “ What Would Yale Do If It Was Taxable ” post).
  • Only invest in what you understand – Do not be sold.
  • History tends to repeat itself or at least rhyme (thank you Mr. Twain) – Try to learn from the past mistakes of others – The investment world certainly offers us many mistakes to learn from.

  • Finally, please consider only investing in what makes you feel comfortable. Demand transparency and remember that simplicity often wins over complexity.

    I cannot promise that these rules will always bring you the highest returns (see rule #1 – don’t make investing a competition), but experience has taught me that they do help investors achieve goals and increase peace of mind.

    What is comfort and peace of mind worth?

    I am not sure but for many, in a world that is pretty fast paced and complex, it might be like the MasterCard ad: “Priceless”