Ditch the Script

The answer to what the markets will do cannot be found in multiple choice answers A through D.

The question to ask is not “what will the markets do over the next 12-24 months?”, but “what can the markets do over the next 12-24 months?”

The answer: (E) anything

That’s always the answer. Most people aren’t OK with this. They don’t believe it. They believe the answer can be found if they dig deep enough into the fundamentals or patterns of the past that will forecast the future.

Exact patterns seldom repeat. Market dynamics are always changing as the components regulate and influence each other. The fallout of COVID-19 did not exist in any data of the past. The markets have never experienced a worldwide economic shutdown like that before. Dynamics in the 1920’s are not the same as today. They won’t be the same in 100 years either, so it’s silly to try to find similar environments or patterns of the past to use today.

To win in the markets, we need to be more comfortable with improv and jazz. To allow for a myriad of possible answers, not trying to find “the one”. To be OK with “I don’t know”. We’re better off spending less time on rehearsal and rigid outlooks, and more on “let’s see what happens”.

At my firm, we don’t suffer from Pareidolia. We don’t hold any preconceived notions about the markets on what might happen. If we did, we’d put ourselves at risk of seeing things we wanted to and things that didn’t exist. We focus only on seeing what is. I touched on this last week in Where are Markets Headed.

The markets determine how we behave, how we make bets. Making a big bet on a specific outcome, as a result of a lot of research and meetings only makes it harder to abandon that bet if/when the markets don’t agree with you.

Ditch the script. Ditch the outlooks. The ego too. 

Go with the flow instead. Be open to all possible scenarios — the ones you can imagine and especially the ones you cannot.

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