As I reflect back on the year just passed, with its turbulence, uncertainty and angst — and look ahead to 2017 and what it might bring — I can’t help but think of one of my favourite quotes, from John Kenneth Galbraith: “We have two classes of forecasters: Those who don’t know and those who don’t know they don’t know.”
2016 was one of those years that left a lot of us scratching our heads. It was a year that didn’t make sense. It started off rocky and investors were pessimistic and fearful. Yet
despite all the social, economic and political turmoil everywhere, the year ended on a spectacular note with the markets closing at all-time highs:
Was it expected? No. Was it predicted? No. Did it make sense? No. Did it surprise even some of our most sophisticated, successful and knowledgeable investors? Yes. So what does this teach us?
I found a great answer in a recent blog post about an interview between the New York Times best-selling author, Tim Ferriss and Adam Robinson, a former chess prodigy and one of the founders of the Princeton Review education courses for standardized tests – and who is now an advisor to some of the world’s largest hedge funds and family offices. The article is well worth reading. Here’s a link:
What’s particularly interesting is how Robinson explained his investing process. I’m paraphrasing, but the gist of what he said is, that when we don’t understand why a particular investment, or the market, goes down (or even unexpectedly goes up, like it did after the election), when there doesn’t seem to be a logical reason, we tend to say “it makes no sense.” But the truth of the matter is, there may be something we overlooked, something we missed, “some x-factor we haven’t considered.”
Which brings us right back to what John Kenneth Galbraith said about forecasting – which essentially is, that no one, not even the brightest among us, can predict what will happen in the future — because none of us has a crystal ball.
A similar message came from the editorial team at the Capital Group, one of the world’s oldest and largest investment management organizations. They began their year-end letter by saying “The events of the past year have made one thing clear — it’s almost impossible to know what’s coming next.” Here’s a link:
Having said that, they were quick to point out that “there are steps an investor can take to be prepared for shocks and surprises;” and then they go on to elaborate on their “five keys to investing in 2017,” which include: Why investors shouldn’t fear uncertainty … why we should still diversify … why we should look beyond the U.S. for dividend-paying securities … why the outlook isn’t as gloomy as we might think … and why long-term planning is essential.
I couldn’t agree more. Our goal always is to help clients preserve and grow their wealth — “preserve” notably coming first. As we have said in the past “As investors, we must expect that every few years the markets will decline The problem is, no one knows when these declines are going to happen.”
Yes, we are in a period of uncertainty. We believe the best stress reliever for investors is to understand what you own and why you own it. You should meet with your Advisor to review your portfolio and review your performance.
Understanding what you own, why you have the asset mix you have and reviewing your goals and objectives is the best way of overcoming the short-term anxiety that comes with increased market volatility.
Alan Friedman is an Investment Advisor with CIBC Wood Gundy in Toronto. The views of Alan Friedman do not necessarily reflect those of CIBC World Markets Inc. CIBC Wood Gundy is a division of CIBC World Markets Inc., a subsidiary of CIBC and a Member of the Canadian Investor Protection Fund and Investment Industry Regulatory Organization of Canada. If you are currently a CIBC Wood Gundy client, please contact your Investment Advisor.