We Can't Predict the Future, Your Money Agrees
It is impossible to predict the future but people have quite a fascination with trying to
December 21st, 2012, at 7:11 PM, do you remember where you were? I sure do.
The world was supposed to end on this date in 2012.
December 21, 2012 marked the end of the world according to the Mayan calendar. There was even a movie made about it.
I was slightly prepared for the earth to combust into thin air and human civilization to end as we knew it once that clock struck 7:11. I placed a non-zero chance of it happening. I vividly recall watching the clock hitting 7:12 and still being alive, thinking to myself that I had survived the so-called end of the world. It did help that I was 13 years old at the time.
It is now Wednesday, October 4th, 2023 and I am 11 years older. The earth, like me, continues to chug right along. Thankfully the world didn’t end in 2012 and I am still able to deliver this email into your inbox.
Although I was a young, naïve 13-year-old, I did have an incredibly important lesson reiterated to me that day. It is impossible to try and predict the future and people have quite a fascination with trying to predict it.
The 2012 phenomenon was built on the idea of December 21st, 2012 being the last day of the 5,126-year-long-cycle of the Mayan Long Count Calendar. The calendar can be traced back to August 11, 3114 BCE, also known as “Before Christ” (BC). There were numerous theories on how this would be the last day on earth but the rationale for why was rooted in it being the last day of the calendar.
However, the Mayans were no different than us, they could not predict the future.
Predicting the future is hard. Beliefs about the future are rarely correct and it is best to approach them with fluidity. Fluid with the data and new information that arises each day. A willingness to almost have an open mind and yes to have strong opinions, but ensure they are loosely held.
We exist in a world where not only do individuals try to predict the future, but those beliefs are sometimes never explicitly tested. Take politics, sports, or pop culture, everyone has an opinion on something. Who is going to be the next president. Who is going to win the game. How long Taylor Swift and Travis Kelce will last. Everyone thinks they know.
In those instances, it is not a dangerous game if someone is wrong. Stephen A. Smith’s contract does not say that he must pick at least 50% of the NFL games right. It is a game of positive asymmetric risk.
He can hold on to his beliefs and priors, no matter how wrong they are. He could think the Dallas Cowboys are terrible all season long and pick against them in every game and never face repercussions for it. Yes, the fans may never let him live it down, but he will still sleep well at night knowing he will be paid the same and still be afforded the same notoriety.
However, life is often not played in that manner. Our opinions and beliefs are turned into bets. We are incentivized for correctly predicting the future and penalized for not. Financially, with our investments, we are making bets on the future.
An investment in a house or a rental property is a belief that the economy will prosper in the future and the investment will appreciate within a certain time frame. Deciding to buy shares of a company is an opinion that the company will continue to innovate, grow, and obtain market share. Dollar-cost averaging the S&P 500 is having faith in the future of the American economy. All bets on the future while all seemingly trying to predict the future.
This isn’t bad per se and it is a part of human nature. We should have opinions on the world and the future. We want working hypotheses of the future because they provide motivation. It is important to learn about the world. It is important to educate yourself financially. It is when these hypotheses become deeply rooted, ingrained beliefs that trouble begins to rise and danger froths at the top. The ideas should be that, a working hypothesis and one that moves and changes with the world.
Cathie Wood is notorious for being deeply rooted in her beliefs. A Google search of “Cathie Wood doubles down” brings back 980,000 results on Google.
In Q4 of 2020, she began to build her second largest position in ARKK, the ETF for her investment management firm, on Zoom. At the time, the stock traded for $445.83, and she purchased 955,000 shares. She would move forward with seven more purchases on the way down, growing her position to almost 11 million shares at a weighted price of $247.03 before selling any shares off.
Today, the stock sits at $68.04.
Sadly, it is a large financial mistake, but it is also a case of letting a hypothesis solidify into something much more, a deeply rooted belief. That is dangerous. It is important to be sensitive and cognizant of a changing tide. Particularly, the world was beginning to open slowly and surely, and the monopoly Zoom was afforded was dwindling. It would forever be ingrained in our future, but we would not forever work from home. This is contrary to what some thought as we had no idea what was going to come out of 2020.
It is quite hard to predict the future. Being willing to admit you may not know is much more valuable than insisting you know how the world will progress. No one knows. Even a firm with plenty of smart minds trying to predict the future very clearly experiences their challenges too.
It is the time in which we don’t move with the wind and surf along with the tide and instead go against it that we get ourselves in trouble. Resisting and denying inevitable change and new data is a slippery slope.
As humans, we love to be right and sometimes, we insist on it. There is a lot more value in admitting we may not know everything. This way we can potentially avoid being taught a cold lesson of humility by the world that everyone experiences in some form or fashion.
I am no different. Two years ago, I was insistent on the Kansas City Chiefs beating the Cincinnati Bengals in the AFC Championship. The Chiefs were beginning to form into a dynasty and the Bengals were a team that had a Cinderella season, a team that was expected to be one of the worst in the conference during the preseason. Throughout the game, I continued to bet a little more money, nothing ludicrous, on the Chiefs. With each snap, it became more of a reality that the Bengals may win but that didn’t deter me. I was determined.
Fast forward, a few hours, and the Bengals won and I was out of a chunk of change. My hypothesis that the Chiefs should stomp the Bengals was quite wrong and my refusal to adapt to the evolution of the game cost me a few pennies. Sadly, I couldn’t predict the script the NFL had put forth. I had got myself in trouble on my insistence that I knew the outcome of the game and I could predict the future.
It is a lesson that no one can predict the future, even in sporting events. Even in games where some say there is a script. Even in games where Buffalo Wild Wings can press a button to send it to OT.
No one is ever always right and no one ever truly knows. Don’t become a prisoner of your own beliefs and opinions. The rate at which the world begins to change only accelerates as the world innovates more and more. It will only get harder to predict the future. It is a matter of discipline and moving forward with an open mind. No one knows how to predict the future and thankfully, the Mayans proved that in 2012 or we wouldn’t be here to tell the story.
Thanks for reading.
-Scantron
Scantron’s Selections - A few things I loved this week
Paul Graham - What You’ll Wish You’d Known - A speech to a high school class and provides some great perspective to those who are young on how to approach life. Paul Graham doesn’t miss.
Alexi Pappas is Bravery - The Rich Roll Podcast - Another old one but one of my favorite podcast of the year.