Addiction To Prediction

“Investment success does not come from following the right predictions, it comes from following the right principles.”Addiction to Prediction

As I sit here writing this article, all I am hearing about today is whether or not the Federal Reserve will “taper” and, if so, how much?

If you are invested in great companies long-term, does it really matter?

Unfortunately, many investors in today’s market have unknowingly become addicted to predictions. The irony is, no one knows who, if anyone, is keeping track of these predictions. And, who does the research to find out how often the predictors are correct?

People will often ask for my opinions on various aspects of investing or the markets. However, I learned a long time ago that making predictions is a losing game – so why do it?

Of course, some may argue that the reason I don’t make predictions is because I am afraid of being wrong or don’t want to appear ill informed.

If one should have that opinion, I am okay with that. After all, it’s an opinion!

We live in a world where many people thrive on opinions and predictions. After all, if the investment community did not make predictions, what would they spend their time talking about? But why is it investors place so much emphasis on predictions?

I think the answer is simple!  Lack of INVESTMENT CLARITY!

Like many business owners, I fundamentally believe that the more you understand about the business or businesses you own, the more clarity you have in making investment decisions. If you have investment clarity, than predictions are irrelevant. If you have investment clarity, you focus on the Philosophy, Strategy, Flexibility and Transparency of how a business owner runs their business, not predictions!

Below are a few common questions regarding investment predictions and the reason why I believe they are irrelevant.

Q. What is the year-end target of the S&P 500?

Answer: It really doesn’t matter. If you are investing in a great business, the business should do well over time. If for some reason the company’s stock price should go down in a given year, it will more than likely be a great opportunity to continue to invest in the company when the share price is “on sale.”

Q: Will the Federal Reserve raise or lower interest rates at their next policy meeting?

Answer:  Whether the Federal Reserve raises or lowers interest rates in any given month, it really shouldn’t significantly impact great companies longer term. After all, well-run companies will adjust to economic conditions on an ongoing basis.

Q: What about the, “I have a hot stock tip for you!” theory?

Answer: I know of very few investors who have successfully employed this approach. Have you ever taken advantage of a “hot stock tip”? Frankly, I have only heard about poor results from “hot tips”, which tells me that is generally the outcome!

Q: When will we see the next stock market correction and how big will it be?

Answer: The reality is, no one knows. But, smart investors do know that corrections create excellent opportunities to take advantage of buying more of a great company “on sale!”

I realize that we will continue to live with predictions in the investment world as long as there is an audience out there willing to listen to them. However, I believe predictions become irrelevant when investors approach investing from the perspective of a business owner.

When investors obtain Investment Clarity, they have the Philosophy, Strategy, Flexibility and Transparency needed to take advantage of opportunities to continue investing in the great companies they want to own long-term.

Invest with Clarity!

About Mark Pearson

Mark Pearson is President & Chief Investment Officer of Nepsis Capital Management, Inc., an asset management firm based in Minneapolis, MN.

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  1. Volatility, Confrontation: Friend or Foe? (Pt 2) | Crystal Clear Finances - February 10, 2014

    […] choosing the companies we invest in. For more on this subject we encourage you to read the article, “Addiction to Prediction,” by Mark Pearson at […]

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