Quote for the Week
The difficult thing for the financial adviser and the client—and I learned this when I managed money—is that no one can really identify how he or she is going to react when surprises come along, and yet surprises are inevitably going to come. Somehow investment consultants need to condition people to this fact. I give a lot of talks where I stand up and say, “We don’t know what the future holds,” and I see all of the heads nodding up and down. But people act as if they do know what the future holds, and that’s what gets them into trouble.
So it’s crucial that consultants try to get through to people that it’s impossible to know the future and that surprise is inevitable. As a result, we have to limit the nature of our bets, we have to be obsessive about diversification, we shouldn’t try to be too smart, we shouldn’t try to shoot the moon. All of these are very simple ideas, and people will accept them ahead of time, but it’s hard for them to live with humbly structured portfolios. However, they have to do so if they’re going to survive. The main thing that an investment consultant can do is to get through this idea that you can’t act as though you know the future if you want to be a survivor. The future may be better than you think, and it’s not necessarily going to be worse. But even if it’s better than you think, that’s also hard to handle. It’s that kind of philosophical teaching that consultants have to understand in their hearts, and then get it into the hearts of investors. Once you’ve got the philosophical grasp, the rest is easy. — Peter Bernstein (source)
From the Archives
Last Call
- Oh Those Share Price Forecasts – Klement on Investing
- Stock Market History Illuminated, 2023 Style – Albert Bridge
- Why Stocks Have Astounded – J. Rekenthaler
- 5 Investing Lessons I (Re)learned In 2023 – Behavioral Value Investor
- 24 Rules for 2024 – Humble Dollar
- Active Patience – MicroCapClub
- Fear Is a Framing Problem – More to That
- The Year in Cheer: 177 Ways the World Got Better in 2023 – Reasons to be Cheerful
- New Years Resolutions of Yore: Vices That Became Virtues – Pessimists Archive