Blind spots are a difficult problem to overcome because they are filled in by intuition and half-understood concepts. Thinking that you know enough is one of those blind spots.
Some time ago I decided to test my ability to predict a simple market. The price of gold. Up or down since yesterday? I put the KITCO market app on my phone and each morning I would ask myself, “When I look, will it be up or down?”
There is information that is available that could help. Price of the US dollar. State of chaos in the world. Government activity.
I did this for two weeks and decided that predicting the current price of gold is a fool’s game. I can only image how foolish it would be if I tried to predict the future price.
The stock market is even more complex. It includes gold as a subset.
Predicting is futile.
In the ten times I tried it, I was right four times. I know that if I went to the zoo and asked the monkeys, they would average out being right five times out of ten. While I like monkeys, I am not sure I like the idea that they can outperform me in an intellectual exercise.
The test is not entirely fair. Maybe if I did it for six months I would get better. I know the monkeys would still be right 50% of the time.
The lack of success points out an interesting fact. We do not know enough to predict the present never mind the future.
So what to do?
Financial planning and life in general entails, risk, randomness, uncertainty, investment of time and money, debt, earnings, taxation, personal and familial duty, business, agreements, service, and charity.
Do-it-yourself looks like a cheap way to go, but often is not. Moe Margles’ law often applies. “Cheap is expensive.”
Don Shaughnessy is a retired partner in an international public accounting firm and is presently with The Protectors Group, a large personal insurance, employee benefits and investment agency in Peterborough Ontario.