Ignore predictions of the future

People are always trying to predict the future. Wall Street professionals love sharing their predictions. You’ll hear Wall Street professionals and economists make predictions about where interest rates will be next year, where the price of gold will be next year or where the price of stock XYZ is headed in the next 6 months. Almost always they’re wrong.

One of my favourite predictions that circulated in the media around 2007 – 2008 was that the world was running out of oil. Everyone talked about “Peak Oil”. The economist Jeff Rubin made a name for himself for saying the price of oil would be $200/barrel. It never happened.

It’s not that the future is unknowable, it’s just that the likelihood of most predictions coming to pass are slim. For example, I can say the value of the stock market in 20 years will be higher than it is now. That’s a reasonable prediction when you look at the past performance of the stock market. However, when I get more specific and say the price of stock XYZ will be $17.00 by July 1st the likelihood goes down.

Once you accept the futility of making specific future predictions, you stop being a speculator and start becoming an investor.