Accurate Ambiguity

By: Matt Garrott
By: Matt Garrott

Punxsutawney Phil practices accurate ambiguity. The vast majority of the time, he sees his shadow.  This portends 6 more weeks of winter, generally lining up with the Spring Equinox.  What a great strategy.  Winter usually lasts 6 more weeks so predict 6 more weeks of winter and most of the time you’ll be right.  He does not predict exact temperatures or exactly when it will turn warm.

Contrast this with the investment world. The market generally goes up, but we seek out experts to comfort us with false precision.  How much screen time is wasted discussing resistance levels, Dow 20,000, or predicting the S&P 500’s earnings?  If you’re a long-term investor, none of this matters.  What matters is that the market goes up over time.  Like the changing of the seasons, the market has its ups and downs, but the harder you try to pinpoint these changes, the more likely you are to wind up wearing cargo shorts in the snow.

In the short-term, things like predicting the S&P 500 out to two decimal places gives us a sense of control. A broad statement like saying the S&P 500 will go up feels like resigning your portfolio to fate.  However, the more granular the prediction, the higher the chance that it will be wrong.  When it comes to investing, it is better to be approximately right than exactly wrong.  Maybe a groundhog that predicted the end of winter down to the exact day and hour would get more press, but over time Punxsutawney Phil would have the better track record.

Fairway Scorecard 1-31-2017