Making Decisions in an Unpredictable World
It's been quite the year so far, hasn't it? 2016 began with global stock markets accelerating last year's decline, then rebounded nicely and stabilizing since March. Gold also
stemmed multi-year lows
reached in early January to rebound 20%, partly in a countercyclical response to falling stock markets. Not to be outdone, oil prices plummeted to lows not seen in over a decade
only to slingshot back
South of the boarder,
Donald Trump, much to the shock and horror of the Republican establishment, has all but
secured the party's nomination
. Hillary Clinton's expected coronation has been impeded by a 74-year-old democratic socialist few had heard of 12 months ago, likely causing her to continue with the Democratic nomination campaign until its convention in late July.
I'll be the first to admit I didn't see any of the above coming, but I am somewhat comforted in knowing not many people did either. So how does one make important decisions, especially financial, in a crazy world where the unexpected becomes commonplace?
"Prediction is very difficult, especially about the future."- Robert Storm Petersen (1892-1949)
For starters, accept that you can't predict the future. Knowing what you don't and can't know is more important than what you do know. This acceptance forces you to be humble in your understanding and flexible in your approach.
Be open to clues where you'd least expect them, and you'll find parallels between science, social science, finance, and life in general. For example, in evolution, it's often mistakenly assumed the species that survived were the strongest or fittest. However, those that survived over the long run, and I mean the really long run, are those that best adapted to changing environments.
The same applies to the investing world where basic survival requires balance and regular adjustment. To thrive, however, is to have the humility to understand that what you know may be wrong, or what works today may not work tomorrow. The dinosaurs were earth's dominant species for a long time. When the environment changed, they couldn't adapt. Lucky for us!
|Asset classes and market sectors-and companies within these classes-oscillate between good and bad returns, and are affected differently as economic environments change. Sometimes things change so drastically that new sectors are created and once dominant products, like typewriters and camera film, are rendered obsolete. Aside from luck, which can't be negated, companies willing to adapt enough to diversify their offerings will have a better chance of survival over companies like Kodak that refused to change.
As investors, we are tasked with understanding what is knowable, what is unknowable, what our worst-case scenarios are, and how to invest profitably factoring in those constraints.
I spend a lot of time learning about how various subjects such as physics, biology, history, and math are interconnected, providing myself with a
latticework of mental models
. I'm trying to make sure I'm not like the proverbial man with a hammer, who thinks everything in the world looks like a nail!
In the Review Queue
Benjamin Franklin: An American Life: At long last I'm at the end of listening to Walter Isaacson's biography of Benjamin Franklin. Isaacson, who wrote about Henry Kissinger, Albert Einstein, and Steve Jobs, exhaustingly chronicles the charismatic Franklin's achievements and inventions over his 84 years. At almost 25 hours in length on Audible, it often seemed to drag in parts, to the point where I found myself almost dreading the next listen.
Isaacson's level of detail may be helpful, or even
desirable for historians and readers who love knowing as much about a figure as possible. However, I would have much preferred a shorter version or at least a book that moved along at a quicker pace. That being said, Franklin is a towering historical figure we can all learn a great deal from. I'd recommend you take a few minutes to
and take a look at his
and of course, his
The Importance of Being Dirty: Lessons from Mike Rowe
: Another great episode from Tim Ferris' podcast where he interviews
Mike Rowe of Dirty Jobs
fame. Their two-hour conversation covers Rowe's humble beginnings, William Shatner, favourite books, and some cringe-worthy stories from Dirty Jobs. It was worth the listen just to enjoy Rowe's eloquence and command of the English language.
Vacation Watch: Italy
For the two weeks between May 30 and June 13, I'll be working out of our Italian office
. I'll be checking my email every day, but if you have any urgent concerns contact Victoria Ko at either
The next newsletter will also be delayed by a week, scheduled for the afternoon of Thursday, June 16.
Matthew Lekushoff, CIMA
Raymond James Ltd.
T: 416-777-6368 | F: 416-777-7020
The views of the author do not necessarily reflect those of Raymond James. This article is for information only. Raymond James Ltd. Member-Canadian Investor Protection Fund
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