Humans Hate Randomness

As Yogi Berra once said, “It's tough to make predictions, especially about the future.”

Recently I read a piece in Barrons online entitled, “The Timeless Allure of Stock-Market Timers”.  (To access the entire article, follow this link)  I found the following quote interesting particularly in terms of how it relates to investing: “Humans hate randomness, the idea that we lack control and don’t really know what the future holds,” he says. “It stimulates excitement to feel like we are in control of the future.

For this edition of Short Squeeze I thought it would be worthwhile to discuss the “mystery” of why, as investors, we often gravitate towards pundits that make bold market calls such as “The Dollar Is Going To Crash”, “Bond Yields Are Set To Spike Dramatically”, “Stock Market at High Risk of Collapse”, etc.  Obviously it is to give us a sense of “being in control,” but is it productive?

Although examples of the times where pundits have appeared either on TV or print and made wrong calls are abundant, I thought it would be more helpful to take a step back and focus on the bigger picture. I am sure you are familiar with the quote “Investing can be like trying to drive a car by looking through the review mirror”. We can try to discern market trends by analyzing current price patterns and making adjustments to the “speed” or volatility of our holdings, but in the short run it is impossible with 100% certainty to see what lies ahead. To circle back to the driving analogy, there certainly will be times we will notice it is raining outside and may need to adjust the speed of our car in order to be cautious and get to our destination safely. However, just because we see some rain it doesn’t mean we should scream at the top of our lungs, slam on the breaks, pull over to the side of the road, get out of the car and run as far away as we can.

As investors our goal is to grow wealth over the long-run by owning shares in companies with the potential to grow their earnings and pass some of those profits through to their shareholders. We firmly believe that over the long “haul” investors' market returns are largely dictated by their asset allocation. As an investor your asset allocation should be largely determined by synching your investment horizon and your risk tolerance. That is what we are here to help you do!

Until next time. 

—Brett C. Hixon, CFP®

Any opinions are those of Brett C. Hixon and not necessarily those of Raymond James. Investing involves risk and investors may incur a profit or a loss. Diversification and asset allocation do not ensure a profit or protect against a loss. Every investor's situation is unique and you should consider your investment goals, risk tolerance and time horizon before making any investment. Prior to making an investment decision, please consult with your financial advisor about your individual situation. Links are being provided for information purposes only. Raymond James is not affiliated with and does not endorse, authorize or sponsor any of the listed websites or their respective sponsors. Raymond James is not responsible for the content of any website or the collection or use of information regarding any website's users and/or members.