Section 3.5

Predicting the Future

Perhaps the most galling things about investing for the future is that we need to know what the future will be like if we are to make good plans.  In most areas of life, we are reconciled with the fact that the future is unknown and mostly unknowable.  The only things that are certain the old saying goes, are death and taxes.  In the financial world, this basic premise of life is not widely accepted.  Perhaps it is because greed clouds our judgment, but most of us cannot accept the fact that tomorrow’s market moves are unknowable today.

Poets and philosophers cannot accept a random walk thesis for life, and most investors cannot accept a random walk on Wall Street.  There must, after all, be some deeper meaning; there must be some grand design and thus a predictable path to a particular outcome.  This poetic fallacy is most likely dead wrong for tomorrow and for you.  Taken together and in the distant future, there is likely much truth to it.

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