The Certainty of Uncertainty

Dear Clients and Friends,

In markets, we know that the future is uncertain.  We also know that changes taking place currently will have both short-term and long-term effects.  These effects can be estimated, but even with the best tools and instruments available there will still be a certain ‘uncertainty’ about the outcome.  The same type of uncertainty one finds in science, medicine and markets leads many to question the utility of prognostications and estimates.  And yet decisions have to be made about an uncertain future, and therein lies the rub.

The focus of this note will be to explain how one gains a certain level of confidence in making decisions in light of an uncertain future.  Warren Buffett once stated, “Predicting rain doesn’t count.  Building Arks does”.  What investors try to do is find investments that generate above average rates of return over time so the investor is compensated for the risk inherent in the investment.  Predicting bad markets doesn’t count, yet investing into bad markets can lead to very good outcomes.  Volatility should be the friend of an investor, but human nature does not embrace volatility.

Right now, our markets are working through a set of potential threats:  Interest rate fears, slowing global economy, and a trade war that is starting to have an impact on US business.  We have to take ownership of the things we can control and avoid worrying about the things we can’t control.  If interest rates rise, the companies we own will deal with higher rates.  The trade war is not ideal, but in a dynamic economy we should see businesses begin to make decisions that will buffer its effects.  If the global economy slows more, business will have to make tough decisions on how to deploy capital going forward.  The focus has to remain on the investments.

This has been a tough year for investors, many market participants have felt ‘left out’ as the market races higher and then gave it back.  Bonds have not done well, and most of the stocks in the S&P have not done well either.  Value stocks have woefully underperformed growth stocks, and this has created a sense of disconnect between the average diversified investor and headline market returns.  The reason I am confident is because the market changes, and what is out of favor today will be in favor tomorrow.  Joel Greenblatt, the famed author and Hedge Fund manager is quick to point out that the majority of mutual fund managers that beat the market over a decade spent 3 years underperforming the market in that same decade.  This is why having a certain amount of faith in the process and strategy is so important.  I will leave you with one of my favorite quotes about risk, from one of my favorite people, “Security is mostly a superstition.  It does not exist in nature, nor do the children of men as a whole experience it.  Avoiding danger is no safer in the long run that outright exposure.  Life is either daring adventure or nothing” – Hellen Keller.


The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results. All investing involves risks including loss of principal. No strategy assures success or protects against losses.

The economic forecasts set forth in this material may not develop as predicted and there can be no guarantee that strategies promoted will be successful.

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