How Would Your Investment Advisor Respond to a Nobel Prize Winner?

When I received a survey from 2013 Nobel Prize winning economist Robert Shiller of Yale University on Monday, I thought it would be worth completing. It is not everyday that I get mail from a Nobel Prize winner.

The survey wanted to know my “opinions and attitudes regarding the stock market.” They were requesting the opinion of 500 investment professionals to be used “for analysis appearing in economic journals and for securities analysis.”

Completing the survey reinforced the fact that we cannot predict the future. Maybe some investment professionals think they can accurately forecast the future and base their investment decisions on their predictions (or their guesses?). We are more realistic and accept that we cannot consistently and accurately predict the future. Answering the survey reinforced our firm’s globally diversified investment strategy, which is the foundation for our success as investment advisors. Which philosophy makes more sense to you?

In the long term, we are confident in the future and think that global stock markets will be higher 10 and 20 years from now. However, if we want to provide our clients with the comfort and security they desire, we have to be realistic with them. We do not know what will happen in the short term. So we talk and plan for short term uncertainty, so you can live comfortably and sleep well at night.

The survey asked what we “expect” in various scenarios. My immediate reaction was: how could I know? How could I accurately tell Professor Shiller what I expected the “Dow Jones Industrial Average” would be 1, 3 and 6 months from today, as well as one and 10 years from now?

I looked up the definition of the word “expect.” Expect means to “regard as likely to happen” and it “…implies confidently believing, usually for good reasons that an event will occur.” So how did I respond? They wanted the expected percentage increase or decrease, but also gave an option to “leave blanks where you do not know.” Of course, I left the spaces blank, as I had no basis to confidently know what the expected increase or decrease would be in the future.

I wonder what basis the other respondents used to provide their answers. Did they just guess? I think my responses were the only possible replies, as there is no way to know what the future will be. This approach is more realistic and actually benefits our clients. It is our role to plan and make investment recommendations for our clients while dealing with the uncertainty of the world that we live in. Uncertainty has always existed and will exist in the future.

We can invest wisely and provide our clients with a better investment experience by recognizing that the world is uncertain. We think this makes more sense than providing them with investment predictions that are really just guesses.

 

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