Is your investment success dependent on the unfolding of a specific set of future events, such as the direction of interest rates, inflation, or the global economy?  Are you relying on particular companies to outperform their competitors for as long as you own their stock?  If so, you may have a problem.

Have you ever critically examined the accuracy of those who claim to be able to divine the future direction of any market?  You will find that the accuracy of such predictions is about the same as if you took a random guess. How many forecasters foresaw the depth and breadth of the recent financial crisis?  The Federal Reserve did not see it coming.  The manager of the largest mutual fund, Bill Gross, said two months before Lehman collapsed that “there was close to 100% probability that Lehman would avoid failure.”  What makes this situation even worse is that the biggest forecasting errors occur when you need the information the most—right before a major turning point. Read the rest of this entry »