The Rational Investor #005: Morgan Housel on Dealing with Uncertainty
Happy Saturday to you,
Welcome to the 5th edition of The Rational Investor Newsletter.
Today’s passage comes from Morgan Housel’s fantastic new book, Same as Ever. It’s a collection of great stories that offer insight into investing, money, and life. I highly recommend it as I think there’s something for everyone. Though, if you’re one of the two or three people who have yet to read The Psychology of Money, it’s maybe the best book on how to think about money ever written, so I’d recommend starting there.
Onto the main event…
Here’s Morgan Housel on Dealing with Uncertainty (emphasis is mine):
“The night before the D-Day invasion, Franklin Roosevelt asked his wife, Eleanor, how she felt about not knowing what would happen next.
‘To be nearly sixty and still rebel at uncertainty is ridiculous isn’t it?’ she said.
It is. But we do. We always have. We always will.
The idea that what lies in front of us is a dark hole of uncertainty can be so intimidating, it’s easier to believe the opposite—that we can see the future, and that its path is logical and predictable. No belief in history is as commonly held, and no belief is as consistently wrong.
The typical attempt to clear up an uncertain future is to gaze further and squint harder—to forecast with more precision, more data, and more intelligence.
Far more effective is to do the opposite: Look backward, and be broad. Rather than attempting to figure out little ways the future might change, study the big things the past has never avoided.”
I want to briefly focus on the piece of the quote that I bolded above since I think this is one of the key principles to successful investing and offer two examples as we look to the future.
Example #1: We don’t need to predict exactly when the next bear market will start or what the catalyst will be to know that one is coming. We can bet that we’ll experience multiple bear markets throughout our investing lifetimes. Statistically speaking, we can expect one every 4-5 years so we shouldn’t be surprised when one shows up—even if its cause and timing are entirely unpredictable and surprising.
We can, and should, prepare for the inevitable.
Example #2: In the same, but opposite direction, we don’t have to know what this quarter’s earnings will be or when the Fed will finally cut rates to believe that, in the long run, stocks will go up. History has shown that human progress is virtually unstoppable. Bad markets and economies come and go, and yet, progress continues in spite of it all.
In fact, another point Housel makes in Same as Ever is that bad markets and economies actually spur progress along. Most people find that surprising, but it’s easy to see this connection throughout history. [Read the book. :)]
Long story short…We should expect bear markets. We should also expect progress. Invest accordingly.
Thanks for reading. I’ll be back again next week with more timeless wisdom from great investors.
Enjoy the weekend!
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