Back To The Future

by: Marshall R. Jaffe


Despite the long odds, investors never tire of predictions.

But we are far better served using our experience to guide our actions.

How we experience the past may be a guide to dealing with the future.

At the beginning of each year, Wall Street attempts to peer through the curtain of time to reveal what the next twelve months might bring. Predictions are always popular because they offer up the hope of turning uncertainty into certainty. Instinctively, we know this is impossible, and we are far better served using our own experiences to navigate the road ahead. But the way we remember the past is different than how we encounter the future - and that difference gets in the way of our ability to exploit a precious resource.

The most obvious difference is that the past is known, and tomorrow is not. Even if circumstances from the past repeated themselves exactly, there is no guarantee that events will play themselves out in the same manner - because the future is always uncertain. Given that, how are we supposed to harvest what we've learned to produce a successful future?

This may seem trivial, but it's not: When I think about the past - I never think calendar year. Other than traumatic events like 9/11, or life-changing moments like the birth of a child, when the actual date is a part of personal or collective history - rarely do I remember what I was thinking or doing on a specific day, month or even year. When I recall the investment lessons I've learned, the focus is almost exclusively on what I did (or didn't do), what I learned about myself, and how I changed from the experience. The date or year is secondary, if I even remember it.

Of the many mistakes I've made as an investor, the ones that stand out were when I saw something obvious (an opportunity or risk) but was more influenced by market direction, the headlines, or my own emotional state to follow through. After a while I realized that the goal of becoming a totally rational being (like Spock from Star Trek) was impossible. So I worked on how to act rationally in spite of my feelings. Legendary investor Jeremy Grantham said it best in March 2009 (after the S&P 500 had lost half of its value) when he wrote a brilliant commentary entitled: "Reinvesting When Terrified."

If our experience of time in retrospect is more episodic than linear, more personal than global - perhaps our planning for the future should be as well. I don't remember the date I learned this lesson, or what interest rates were, or how fast the GDP was growing. It didn't matter. All that mattered was that I now understood that my greatest fears were bad markets, but my greatest enemies were bad choices.

We need to take our focus away from things we can't control and direct it towards things which we can. That simple reframing makes it much easier to ignore the prediction game, because we are too busy tapping our experience and common sense to prepare intelligently for the future when it shows up.

PC pioneer Alan Kay might have been thinking about technology, but I think his wisdom applies to us as well. He wrote, "The best way to predict the future is to invent it." Invention implies seeing the world in a different and creative way - one that leads to a solution, when before there was just a problem.

I don't think it's stretching the analogy too far to suggest that if we have the ability to invent our own prosperous New Year, there will be less need for the annual wish for one.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.