2010 Forecast: The Year of Uncertainty
Which is simultaneously, the year of waiting.
"Lying here, during all this time after my own small fall, it has become my conviction that things mean pretty much what we want them to mean. We'll pluck significance from the least consequential happenstance if it suits us and happily ignore the most flagrantly obvious symmetry between separate aspects of our lives if it threatens some cherished prejudice or cosily comforting belief; we are blindest to precisely whatever might be most illuminating."
-- from Transition, by Iain M. Banks
"Still a man hears what he wants to hear
And disregards the rest..."
-- "The Boxer," by Paul Simon
2010: A Year of Uncertainty
I read and research more for the annual forecast issue than any other article during the year. And having had the luxury of not writing for the last two Fridays, I've had even more time. It seemed to me that the volume of forecasts out this year was greater than ever. But even I was amazed when Birinyi Associates, Inc. showed a picture of annual forecasts they'd come across and printed out. It was a stack almost two feet tall and comprising over 3,500 pages. They helpfully summarized the projections for the major investment banks and compared them.
Their work confirmed my own reading. The projections they cited and those I've read were all over the board and more divergent than I can ever remember. But as I read the tea leaves, there's a lot of uncertainty and caveats with these forecasts. And too many are based on assumptions that the future will turn out largely looking like the past. It's been my contention for a long time that we're in a period that looks nothing like the past, and to use backward-looking data to project the immediate future carries the risk of being very misleading.
Thus, before we get into my projections, I think we need to take a survey of where we are. If you don't know where you are, how can you figure out where you're going?
This is a challenging time, and I'm going to challenge a lot of people's ideas over the next two weeks. So, as we start, let's look at why we need to very carefully assess our belief systems. The two quotes at the start of the article point out how difficult it is for us to accept an idea that challenges our belief system, or would have negative consequences for our lives. If we're long some investment, we look for good news that tells us our investments are going up, and gloss over the negatives.
Last month, I read a pre-publication manuscript of a book by my good friend James Montier, called The Little Book of Behavioral Investing. I was asked to write the preface. I have to say that this book will become one of those that I read at least once a year, as it just so pointedly reminds me of all the ways we make investment (and life!) mistakes because of the ways our brains are hard-wired.
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