Lots of people think they have a crystal ball, but no one really has one. It is just a fantasy!
Take Friday's jobs report. The increase in jobs was 313k while the consensus was for 200k. That is 36% OFF THE MARK! Furthermore, this is just estimating the most recent period. What if you are trying to estimate 4 months away? How far off do you think that would be?
I am sure glad that the people estimating the jobs report are not building homes. Could you image your house if your carpenter was off 36% on all his cuts? It would look worse that a kid's tree fort. (I would rather have the kids' tree fort!)
Value investors do not predict the future, because they know they don't have a crystal ball. They protect against the future, by having a margin of safety. In that respect, they are looking backwards. The track record is more important. Yes, the history.
At this high point in the bull market, people may laugh at the idea of not projecting forward. To that I say, let them follow the herd off the cliff.
Investing is often convoluted. In every other financial transaction, you want to buy when prices go down. Only in investing, do people want to buy more when things go up. People don't want to buy when prices fall. It is like a totally different dimension! Is this part of the space time warp of outer space? We need a physicist to study this!
When people look at everything else, they look to the past as a way of having confidence in future outcomes. Kid's high school grades and SAT's are used to determine their admission to college. All sports teams/players are evaluated by their historical stats. Horses are bet on based upon their historical record. The list goes on and on.
But now, let's get back to projecting the future of investments. Everyone would like to think they have that crystal ball. If anyone really took the time to compare their projections to the actual results, you would find huge discrepancies. With each further period out, the errors would grow even larger.
Now I have a question for you. I have a friend, Jack, who is selling beans that grow to the sky. Do you want to buy some? They are only a million dollars! Let’s make it an even two million. Sold!
