Let’s make some predictions. Here are some ideas to predict for.
When will the stock markets fall?
How much time will the economy take to recover?
Where is the monsoon headed?
Will we ever stop wearing masks in public?
What will be Trump’s next tweet on China?
Did you see your mind rattle out ‘predictions’?
Making predictions almost comes to us as a default.
Our brains are working full time. We are using information, making assumptions and then (hopefully) using a little bit of probability and some intuition to gaze into the future.
We may have zero control over the events or no impact from the resulting event, but we love to make these predictions.
1, we love pattern matching.
Remember watching that cricket match and trying to tell whether the next ball will lead to a 2,4 or 6 – based on what has happened so far?
2, we seek certainty.
We want certainty. As contradictory as it may sound, we hate surprises that we don’t expect.
We don’t want to be caught in a rain or a clogged street. Even with our equity investments, we need certainty of returns.
Someone mentions the word ‘guarantee’ and we are willing to take them home.
3, we want to feel smart – a top need on the Maslow’s hierarchy.
Whoever called out the major bust or an important event, isn’t s/he a hero?
It feels good to be smart.
Some predictions are required
We live in a complex world with billions of moving parts. As human beings, to survive is our default nature.
Predictions or forecasts help us feel that we are somewhere in control of the outcome. They can also help us prepare better.
Take example of a business plan. It is based on a certain state of the world and how does the business wish to be a part of it.
We plan our resources better, coordinate our time and activities and work towards desired results.
Ditto for your personal financial plan.
There are two types of predictions – the lucky and the wrong!
Predictions can be dangerous specially when done on an excel sheet just with using one component – your imagination.
The next is when they are mindlessly relied on.
Making a prediction is one thing but if you are betting a lot on your prediction, it can wipe you off, literally.
Or, make you lose out on potential gains. (Anyone waiting for the stock markets to fall, raise your hands!)
You don’t want to remember how many times you have been wrong about your predictions. I can’t even count the number.
So, what should you do?
Someone famously said, “No plan survives the first contact with reality.”
What we need to do is to make the best outline our objectives, resources available and the current environment. We adjust for things that can go wrong. Then, we draw a course of action.
Because, if you really want to make a difference, you have to start to learn to work with uncertainty.
Remember, it is very difficult to make correct predictions all the time. It is much better to prepare.
Let me leave you with this fun quote to ponder upon.
Forecasting is the art of saying what will happen, and then explaining why it didn’t.
Between you and me: Are you just predicting or you are preparing? What will bring you your behavioural alpha?