Be Terrified

You are going to run into people who are so certain of what higher volatility means for the markets that it’s as if they are reciting their own name and phone number. Be terrified of their indefatigability about a topic like this. Imagine the sheer arrogance and borderline mental illness required for a person to assume that they can accurately foretell the actions of a hundred million investors around the world.

You will come into contact with investment professionals who give you direct, unflinching answers about what the impact of higher rates will be on the stock market. Despite the fact that a million other variables will simultaneously inflict their own unquantifiable influence on outcomes for each of the components of the Dow Jones, the S&P 500 and the Nasdaq Composite. Be terrified and slowly back away, for you are talking with an undeniably unscrupulous or insane person.

You will meet all sorts of people bearing rules, formulas and equations for why this thing should most assuredly follow that thing – as though there is some fundamental, physical law that can merely be looked up in a library and adhered to by anyone who bothers to search. Be terrified, for you are in discussions with the delusional and the deranged.

You may end up conversing with a person swearing by some rule of thumb or another as though any kind of constant can be applied to a complex, adaptive, biological system like the investment markets. The only response is to be terrified that someone could possibly not know better than to think some fragment of Old Wives Tale wisdom or age-old aphorism could ever be universally applied, in all situations, to satisfactory ends.

If there were ironclad rules, we would all be following them.

If there were inter-market relationships we could set our watches by, everyone would always know what time it was.

If there were immutable formulas, we’d all have adopted them a long time ago.

If there were an answer, we’d have all had the whisper of it imprinted on our very souls.

If there were a shortcut or a cheat code, every little boy and girl would have grown up knowing it.

But there are not. The reality looks more like this:

And you can tell that this is the truth precisely by how disappointing it is. Lies are satisfying, they were created to be crowd-pleasers, hence the speed with which they spread. Truths are ugly and annoying, with no one in possession of them being wholly content. Complex, adaptive systems do not owe you the satisfaction of being neat, easy, clean or compact enough to be shoehorned into some sort of axiomatic nursery rhyme.

Be terrified of anyone you come across who says otherwise. And build durable portfolios in recognition of this.

“People who rely heavily on forecasts seem to think there’s only one possibility, meaning risk can be eliminated if they just figure out which one it is. The rest of us know many possibilities exist today, and it’s not knowable which of them will occur. Further, things are subject to change, meaning there will be new possibilities tomorrow. This uncertainty as to which of the possibilities will occur is the source of risk in investing.”

– Howard Marks, September 2014


This post originally ran here on February 11th, 2018

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