Written by: Corey Janoff
Assuming everything publishes as scheduled, this post will come out on Election Day! This is arguably the most anticipated election in our lifetimes. At least the most anticipated election in the last four years. You have been seeing polls and prognosticators for months, trying to predict what will happen with the election and what will result from it, from COVID to foreign relations, to the economy, to the stock market. You are taking in all of this information and likely drawing your conclusions and making your predictions about what will develop in the coming weeks, months, even years. In case you didn't read the title of the post, I would like to forewarn you: be careful acting on predictions.
Predictions date back to the beginning of time. As hunters and gatherers, we had to predict several things. Where we could catch dinner, the best method for catching it, and what the weather would be like to plan accordingly. We had to predict where predators may attack from and the best defense strategy in case we get attacked. Making short-term predictions is built into our DNA as a form of survival. However, we as humans and the world around us has evolved. The same predictions that kept us alive for thousands of years don't always apply to personal finance and investing rules.
I'm sure you can think of times where you predicted one thing would happen, and you ended up being wrong. I'll give you some examples from just this past year where I was flat out wrong.
The Impact of COVID-19
When COVID-19 first broke out in Wuhan, China, I predicted (without much thought to it) that it would be isolated over there and be unlikely to spread to the US. I assumed any spread beyond China would be similar to the Ebola scare in September of 2014. Anyone who somehow made it to the US with COVID would be immediately quarantined, isolated, and the virus would be prevented from spreading further. I figured COVID would make headlines for a few weeks, and then when the headlines ran stale, we would move on to other more interesting stories, like we always do.
Let's just say I was slightly off in my thinking. Good thing I didn't make any bets on the over/under of COVID cases in the US because I would have definitely taken the under and lost.
The Impact of COVID on Sports
After everything was shut down in the spring and we saw the ramifications of this virus, I assumed there was no way to see team sports the rest of this year, especially if travel was involved.
The NBA was a unique situation, where they could isolate all of the teams in one location and keep everything contained in a "bubble." I was still skeptical they could pull it off and manage to remain COVID-free for three months. Kudos to them.
As the NFL and college football teams were nearing the start of training camps in the summer, I remember talking with friends saying there is no way they will play football this fall.
For one, the colleges' liability to have football players back on campus in close contact while making the rest of the student body stay at home and take classes virtually raises a lot of eyebrows. Also, while the death rate in younger people has been low, overweight people are at a higher risk. Football has a good number of 300-pound guys on each team. I can see attorneys lining up to take cases for parents whose sons got COVID and died while playing football in college. Can you imagine being the coach or athletic director in that situation, having to look a parent in the eye after promising them their kid would be safe under your watch? I didn't think colleges would want to take on that risk and liability.
At the pro level, I predicted some old overweight coach would catch COVID and die during training camp in the summer, and that would shut the whole league down for the year.
Well, I was wrong. So far, at least. The season isn't over yet, but I hope I remain wrong.
On top of that, I predicted the travel and scheduling would be a logistical nightmare. If one team has a COVID outbreak, they would either have to reschedule, cancel, or forfeit their game. Do you have makeup games? How do you create a playoff system where teams don't play an equal number of games? This prediction is proving to be somewhat true, especially at the college level. It has been a fiasco at the college level, and to a lesser degree, at the pro level so far (but still an issue). Yet, they're pressing on and making it work. I was half right, half wrong in my prediction here.
The Impact of COVID on the Economy and Stock Market
In late January, I didn't think COVID would be a big deal. I figured it was a typical case of the media blowing things out of proportion and people overreacting. Wrong.
After reality set it, the stock market went crazy, and businesses were forced to shut down. I predicted that the stock market would take several years to recover while the economy works through all of this.
We're not out of the woods yet, but I was pretty wrong. The Federal Reserve launched a bazooka at the problem in the form of fiscal stimulus, resulting in the stock market landing on a trampoline and bouncing back almost as quickly as it fell. It even passed its pre-COVID peak and hit new all-time highs in the late summer.
In a recent episode of our podcast, Financial Clarity for Doctors, we talked about politics and the stock market and how the stock market doesn't always move in lockstep with the overall economy. Currently, the stock market appears to be pretty strong, while our economy is still on tenuous footing. Looking backward, it's easy to offer explanations for why that is. In real-time and looking forward, it's a lot murkier. Good luck predicting what will happen next. I won't even try.
Where is the Puck Going?
The greatest hockey player of all time, Wayne Gretzky, had a great quote: "Skate to where the puck is going to be, not to where it has been." This quote is often cited by business leaders envisioning the future of their marketplace. See where the trend is going, or predict what the next trend will be so that you can capitalize on it.
Reed Hastings did a great job of this when he transformed Netflix from a subscription mail-order DVD company to a subscription online streaming company. However, it wasn't a smooth transition. When they started pushing people towards online streaming and created separate subscriptions for DVD and online streaming in 2011, it was met with uproar, and they lost 800,000 subscribers.
I was one of those annoyed customers who dropped their subscription. The internet connection was never strong enough. The videos would freeze and have to reload numerous times. It was super annoying. I canceled my Netflix subscription and started renting DVD's from Redbox instead.
Redbox seemed to have kiosks at every grocery store, McDonald's, 7-11, etc. Renting a DVD from Redbox was almost more convenient than walking to my mailbox to pick up a DVD from Netflix. I also didn't have to wait several days for the movie to arrive. I could simply pick it up on the way home from work or when I was going to get groceries.
Fast forward nine years, and I would be hard-pressed to find anyone who doesn't watch shows/movies on Netflix. I also can't remember the last time I rented a movie from Redbox. Can you?
Skating to where the puck is going to be is easy in sports because laws of physics apply. We all learned of Newton's first law in high school – an object in motion will remain in motion until acted upon by another force. It's difficult to clearly see the puck in the business world, let alone where it is headed.
Correctly predicting hundreds of millions of people around the world would gain access to high-speed internet and gravitate towards online streaming services over VHS/DVD's and cable TV takes some strong foresight. In hindsight, it's easy to say, "Anyone could have seen that coming." If anyone could have seen that coming, why didn't someone else capitalize on it? How come Redbox didn't make a move into digital streaming in the late 2000s instead of doubling down on DVD rental kiosks?
Acting on Predictions
I wrote about numerous predictions I got wrong this year. The good news is, I didn't act on those predictions in a way that could have backfired. It's one thing to make a prediction that could go either way. It's another to act on it. If you're right, you look like a genius. If you're wrong, you look like a fool. Or even worse, you shoot yourself in the foot, figuratively speaking.
When acting on predictions, there are two ways to go about it. There is a defensive action where you take measures to protect against a risk of loss. There is offensive action where you make moves to capitalize on potential opportunities for gain.
I have had several people ask me essentially the same question during this year. In one form or another, they have a strong feeling about which way the stock market is headed, and they want to adjust their investment strategy accordingly.
For example, back in March, when the stock market was migrating south quickly, I was asked about selling out of stocks to protect against further declines.
Simultaneously, other people have asked about getting more aggressive and investing more money in stocks to benefit from the potential upside of a rebound.
Opposite opinions. Equally strong convictions. In the moment, flipping a coin would have given you just as good of odds at predicting what direction things were going to head.
Anytime someone comes to me with a prediction and wants to act on it, I always politely ask, "What if you're wrong?"
Have you ever been wrong before? You would be lying if you said, "no."
Anytime you have a strong feeling about something and want to act on it, think about what will happen if you are wrong. If the result of being wrong isn't detrimental, then let's talk more about acting on this prediction. If being wrong could set you back considerably, then let's pump the brakes.
This is where having a strategic plan in place for your financial goals is extremely beneficial. It removes almost all emotion and subjectivity from the equation. If you're investing a set amount each month into a well thought out portfolio for retirement, knowing that there will be ups and downs in the market, but are confident that this strategy will ultimately lead you to your end goal, then you're likely in good shape. If you have 20 years to go before you plan to retire, and your investment strategy was appropriate for you a year ago, then it is probably still appropriate for you today. And it will probably still be appropriate for you next year.
If your circumstances and goals haven't changed, then you better have a compelling reason to change the strategy.
One Final Prediction
I have a bet with a co-worker on who will win the election. We bet 46 pushups on a videoconference during our next all-company monthly meeting. Both of us obviously predict the opposite results.
One other prediction I will make is that we may not know who the president will be on November 4th. With tens of millions of voters filling out mail-in ballots, it's going to take some time to tally up all of the votes. Maybe one of the candidates will win in a landslide, and we'll know before the end of election night. However, I predict it could be weeks before we have a concrete result.
That being said, I wouldn't bet anything substantial on it 😉.
Investing involves the risk of loss, including total loss of principal. Consult with your financial advisor regarding your specific circumstances.