The World Cup has barely reached the knockout stages and already the predictions are in tatters.
Germany are out, losing on penalties to Paraguay. The Netherlands have followed them home after defeat to Morocco. Argentina almost lost to lowly ranked Cape Verde. Norway beat Brazil. The US President overturned a red card decision. Every tournament seems to produce results that absolutely nobody saw coming.
Unless, of course, you are Paul the Octopus.
For those who have forgotten, Paul was the apparently psychic octopus who correctly predicted a series of results during the 2010 World Cup. This remains one of the more impressive examples of financial forecasting ever produced by a sea creature.
Everyone else is guessing. The experts don’t know The bookmakers don’t know, although they are usually better than the rest of us.
The supercomputers don’t know.
And the bloke in the pub who has a “feeling” about Belgium definitely doesn’t know.
We only think we do.
The trouble is that once something has happened, our brains quietly rewrite history. Germany losing to Paraguay suddenly becomes “obvious”. Of course Germany looked vulnerable. Of course Paraguay were underestimated. We convince ourselves that we saw it coming all along.
We didn’t.
Which brings me, perhaps rather conveniently, to investing.
If I had to boil our investment philosophy down to three rules, they would probably be these:
Rule 1: Nobody knows anything.
Rule 2: If you think you know something, just stop right there.
Perhaps you think US shares are too large a part of the global market. Perhaps you know technology is in a bubble or the semiconductors have moved too fast. Perhaps you know interest rates and inflation will rise. Perhaps you think there will be another war soon.
Rule 3: Refer back to Rule 1.
Of course that doesn’t mean we know nothing. We know that diversification matters. We know that costs matter. We know that trying to jump in and out of markets usually ends badly. We know that patience has historically been rewarded.
What we don’t know is tomorrow’s winner.
That’s why we don’t build portfolios around forecasts, hunches or clever-sounding predictions. They make for good television. They do not make for a reliable investment strategy. So as Jack Bogle of Vanguard famously once said ” Don’t look for the needle in the haystack. Just buy the haystack:
The World Cup would be rather dull if every favourite won.
Investing would be much easier if someone really did know what was coming next.
Sadly, they don’t. Unless they are Paul the Octopus.
And even he is no longer taking client money.
- This blog is for information purposes and does not constitute financial advice, which should be based on your individual circumstances.
- Past performance is used as a guide only; it is no guarantee of future performance
- The value of investments may go down as well as up and you may get back less than you invest.