Leaving Little to Chance

On the list of past predictions about the future that came true, one often rises to the top because of its relevance today. In a 1909 interview with the New York Times, inventor Nikola Tesla said, “It will soon be possible to transmit wireless messages all over the world so simply that any individual can own and operate his own apparatus.”

The development of wireless communications revitalized a stagnant telecom industry in the 1990s. Today, mobile phones and wireless communications are the norm. Of course, it took more than eighty years for Tesla’s prognostication to come true. Soon, in this case, meant decades, not years. But that is the problem with many predictions—it’s not so much a matter of if they will come true, it’s when.

There is little difference between December 31 and January 1, the end of one year and the beginning of another. After all, it is just one more day. But each new year brings with it a host of new predictions from everyone with a platform. This is especially true with people associated with the stock market, the economy, and those with vested interests in the fields of technology and business.

Back in my mutual fund days, we used to play a game. At Christmastime each year, the portfolio managers would make predictions about what the new year would bring. They would try to predict which companies and industries would perform the best, where the stock market would end, and what direction interest rates would trend. Then they’d tuck away their predictions, revealing them at Christmastime the following year. Some predictions happened quickly, some not at all, and some, now with the benefit of hindsight, only came to pass many years later. But we always had a big laugh about how many unexpected things happened—things we never could have imagined.

As we look forward to 2022, there are countless predictions about how much interest rates will rise, whether the economy will grow, if the Fed will get inflation under control and how well we will get along with some of the bigger bullies on the block, namely Russia and China. Especially with investments, relying too heavily on near-term predictions often leads to disappointment. Even though we know interest rates are likely to rise, the economy is likely to grow, and inflation is likely to shrink, we can’t know how soon or by how much. And perhaps most importantly, investing based on hoped-for outcomes with economic conditions that are beyond our control doesn’t put an investor in a position of strength.

The wiser approach to investing is to take a longer view. In that sense, there are some themes we think are likely to drive future growth in the economy and long-term returns in the stock market. In transportation, electric vehicles are becoming mainstream especially as more manufacturers enter the market. In communications, companies are making it easier and safer for us to stay informed and connected. In healthcare, precision medicine is making treatments more specific, safer and less costly. In banking, protocols for transferring money faster and more securely are giving a stodgy industry new life. These are just a few examples, but taking a long view allows us to ponder and profit by the astonishing achievements of industrious people.

We cannot know what this year will bring. We cannot control what the Fed or Congress will do. But we can buy exceptional companies managed by smart people, companies that offer products and services that are necessary and desirable, companies that don’t just survive economic turmoil, they thrive in the wake of it. By investing this way, we control what we can, leaving as little as possible to chance.