Forecasts Are No Good, But We Need Them “for Planning Purposes”
By R.Kevin O'Keefe, CIMA®, AIF®
I like this essay by Motley Fool writer Morgan Housel. A few pertinent points:
“You would not wish upon your worst enemy the track record of professional economists predicting the financial events that really mattered throughout history.”
“In a world where the most important events can’t be predicted, the more we fool ourselves into thinking that we can forecast, the more risk we expose ourselves to.”
“Lasting financial success comes to those who align the odds of success in their favor. That comes from being adaptable and open to change, which is literally the opposite of relying on forecasts.”
I worry sometimes that our clients think that a big part of our job is to forecast market trends and to position their portfolios accordingly. The problem with this expectation is that it’s virtually impossible to do this with consistency over the long term.
What I do think is a big part of our job: To minimize the potential for ill-advised financial decisions as a result of overconfidence, greed, panic, and/or ignorance—and to follow a rational investment process, focusing on what we do know—what we know about our clients, and what we know about sustainable, responsible, impact investing.
Posted: February 5, 2014