Unpredictability Ignorance

It’s not so easy to be active in the stock market.

Because when people I meet learn that I make my money predominantly from the abundant stock market, theymore often than notflood me with questions on my prediction of the future trends and alsoto share one ‘hot tip’.

I have to say that the latterthe sharing of the one ‘hot tip’is easier to comply:

I simply don’t give out tips!

Not because I am egoistic, or that I am reluctant to share my knowledge, in truth, it’s because of these practical reasons:

1) I neither know their risk tolerance, nor their investment horizon, nor their emotional state, nor their fundamental financial situation, nor…  you get the point, don’t you?  One size definitely does not fit all, no matter what H&M tries to tell us with their “One Size fits All Socks” (they are too small for me anyway).one-size-does-not-fit-all when it comes to investments

2) Even if the ‘tip’ was right for them, can I guarantee that I would be able to inform them when I believe would be a good time to sell that stock?  No, I can’t.  Thus, it would be unfair to share only one end of the trade, the “buy now” without ensuring an update on the “sell now” as well.  Moreover, crucial corner stones wouldn’t be in place; like how much to buy and where to put a stop-loss.  I might mention these points, though I doubt that they would be ‘heard’ and ‘adhered’ to.

3) I don’t want the future friendship to be hinged on the rightness or wrongness of my previous ‘hot tip’.

But to return to the formermy prediction about future market trendsit would take a bit longer to explain as it’s more elaborate, so bear with me for a while:

Every aspect of the world is fundamentally unpredictable.  Computer scientists have long since proven this.  If you could predict your actions, you could deliberately violate your predictions, which means that the predictions were wrong after all.

Whoa, was that too fast?

To help clarify the above, here’s an example from the physical world:

life is unpredictableThe only way to learn about tomorrow’s weather in detail would be to waittwenty-four hoursand see, even if nothing is random at all.  The universe is computing tomorrow’s weather as rapidly and as efficiently as possible; any smaller model would be inaccurate, and the smallest error would be amplified into large effects.

And here’s another, from a personal level:

Even if the world would be as deterministic as a computer program, you still would not be able to predict what you’re going to do.  This is because your prediction method would involve a mental simulation of you that produces its results slower than you do.  You can’t think faster than you can think, nor can you stand on your own shoulders.

In essence, it’s futile to chase the pipe dream of a magical tiny theory that would allow us to make quick and detailed calculations about the future.

We can’t predict, and we can’t control; nonetheless, to be able to accept this could be a source of liberation and inner peace, since we’re all part of the unfolding world, surfing the chaotic waves, and encountering the occasional Black Swan along the way.

This is a difficult concept to grasp; therefore, I am constantly working on my emotional rewiring; learning to take responsibility, and to live with uncertainty.

So, my answer is “I don’t know”.

Neither do you, nor does anyone else.

To that end, we need to stop clinging to the belief that others might be able to predict the future; to stop paying fortune-tellers for illusory certainty; to stop listening to bankers (fortune-tellers in smart suits) forecast next year’s dollar rate, in spite of the fact that their track record is hardly better than chance.

Still, we read those erroneous future predictions and draw conclusions from them, which can result in nasty outcomes for our money.

Perhaps my attempt at compressing and conveying the fundamental law of investing (“the future is uncertain”) has made investing sound a bit arcane, or worse; made you indecisive about whether you can/should invest with confidence,

Not only do I apologise for this, I also would like to offer a “confident high probability solution”:

Start a regular savings plan into three or four broad based Exchange Traded Funds (ETFs), because this would remove the big issues of timing as well as the emotions that hamper so many investors’ long-term returns.

This approach simply involves buying a fixed amount of investments monthly, rain or shine, no matter how good or bad the markets might look.  Additionally, it would also remove the stress from investing as there’s no need to decide whether those ETFs are costly (or not) or whether the market conditions are conducive for investing.

Nevertheless, I have to admit that this approach is not totally risk-free either, but it has a solid risk/reward ratio as well as high probability when applied over the long-term, judging from their historical track record.

Lastly, know that there is no stability without volatility and that risks and responsibilities are chances to be taken, not avoided!

 

“An unbiased appreciation of uncertainty is a cornerstone of rationality.” — Daniel Kahneman

“I believe if we teach young people, children, the mathematics of uncertainty, statistical thinking, instead of only the mathematics of certainty—trigonometry, geometry, all beautiful things that most of us never need—then we can have a new society which is more able to deal with risk and uncertainty.” — Gerd Gigerenzer

“The future is as uncertain as the past is obvious, but it’s so easy to convince yourself of the opposite.” — Morgan Housel

The more eagerly we commit to scrutinizing and testing our theories, the more readily we accept that our knowledge of the world is uncertain, the more willingly we acknowledge that perfect prediction is impossible, the less we will live in fear of our failures, and the more liberty we will have to let our minds flow freely.  By knowing more about what we don’t know, we may get a few more predictions right.” — Nate Silver

6 Comments

  1. This site is my motivation, very excellent design and style
    and also perfect content articles.

  2. H Andy,

    Just like u, I try not to share tips even with my wife who is not investing. Haha. Hey..ok..I do share my portfolio counters in my blog.

    Normally queries from tips chaser does not end with which companies u own. They want to know what is ur buy price, how many shares u own, and what’s ur Wife name or even what’s ur mummy’s name! Normally tip chasers are so engrossed in what u r doing that they forget what is their own name!

    Let’s say stock XYZ. If the current share price is $1 and u bought at $0.5. Then despite u tipping ur friend how good the share is and urge them to buy now, I think they will be really hesitant.

    I also write a similar blog as you earlier…

    http://www.rolfsuey.com/2015/04/what-is-your-buy-in-price-for-xyz-stocks.html?m=1

  3. Hi Andy

    It is indeed an interesting blog post you write about predictions, hot tips ,etc.

    I seldom make a comment (at least in the rational mind of the finance.sg, haha) but I find it tempting to reply yours and perhaps share my thoughts on predictions, certainty and the future.

    Many people I know and come across are far too rational, constantly weighing the cost/benefits ratio, doing the risk assessment, etc (the rational minds at work) but few , far too few (at least I know) engage in the irrational faculty of our mind (the subconscious, creative, etc).

    Like you, I used to work in the financial sectors industry and was constantly churning numbers to hit targets, talking about quotas, KPI, etc and realized it drives many people up the wall, blood pressure, stress and lack of peace in their lives.

    Through reading, meditating and reflections, I discovered we tend to focus too much on the means to the end. The process, the steps, the pathway that we thought would bring us the satisfaction, happiness and wealth once we hit it.

    In the words of Michael Gerber, we are too fascinated with “doing, doing, doing” and not taking steps back to see the bigger picture. We spent numerous hours thinking of the problem on hand, hoping to get a solution. Sometimes, we get it and sometimes we don’t.

    A much easier and better method that I used is thinking from the problem , i.e. I travel in time to my future (prediction here) and stay in that realm and imagine how happy, satisfied I will be now that I have achieved what I want.

    It is so wonderful, so relieved and so peaceful…………….

    And that’s it! I stopped searching for networks to connect, new information to acquire, whatever.

    When I share this methods, too many friends said I am crazy (like when you declare you TACOMB time) and nobody will attend my talk. I simply leave them alone.

    Like investment, I put it to the test, to the extreme if I may put it. When my son has a fever recently, I was fighting hard to not give him any panadol (like before) but see in my mind that he is at his bubbly and playful self, playing his toys, i heard his laughter, the sounds he made with his toy cars and me, going about my own business as usual, not worrying nor thinking about his fever at all.

    I must say it takes a lot of practice and the temptation to give in is great. Thus far, I had more success , scoring in areas like communication with my spouse, her promotion, my business, trading in stocks, health, etc.

    That which is was wished until it were – Shakespeare

    This verse has accompany me for a long while and each time I failed (my faith more than the law itself) , I reminded myself of this verse.

    To your success
    Desmond

    • Hi Desmond,

      We do look like thinking along the same lines.

      What you describe and practice is exactly what approaches such as ‘The Magic of Believing’, the ‘Law of Attraction’, and ‘The power of our subconscious mind’ describe. They are all based on the universal laws.

      We are powerful magnets, attracting into our life the equivalent of whatever we are strongly feeling or thinking about.

      In case you would like to share some tips on good books/audiobooks in that field do drop me an E-mail.

      To your continuous success
      Andy (Tacomob)

      “There is nothing either good or bad, but thinking makes it so.” – Shakespeare

  4. Hi Andy

    You did it right by admitting there is no hot tip for your friends. It is complicated to add in $ sense in relationship. Moreover, like what you have shared, no one really know the future, neither Warren Buffet.

    Investing ETFs are smart way to ride the general markets.

    • Hi Frugal Daddy,
      Thanks for your acknowledgments.
      I think the financial industry makes investing appear so complicated in order to justify their “non-success-based” fees.
      Luckily there is an easier way to partake in the abundance of the stock markets via ETFs. At least a 80%-good-enough solution for someone who does not want to spend more than an hour a month / a quarter on his / her long-term financial future.

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