At the beginning of 2016, we put out an investment letter that explored the accuracy with which market forecasters were able to predict the performance of the stock markets for an upcoming year. We can look back on 2016 and say with a high degree of certainty that very few people expected the market results that actually occurred. According to this Wall Street Journal piece by Jason Zweig (paywall), we would also do well to carry into 2017 a healthy sense of expecting that our first assumptions will not turn out to be 100% accurate. Zweig writes that we have some established mental biases that tend to affect our approach not only to investing, but to many other areas of our lives.
This isn’t to say we must never adjust our investment approach based on expected future events or assumptions about how the market will change. Our portfolios and our investment themes should reflect our points of view, therefore requiring some element of forward looking assumptions. But how do we insulate ourselves from…ourselves? How do we avoid making reactive decisions or using hindsight (which is always 20/20, of course!) to over-bolster our certainty about the future? Intellectual curiosity. We must always be challenging our assumptions. Renowned investor Sir John Templeton once said “If we become increasingly humble about how little we know, we may be more eager to search.” At Matter, we seek to be lifelong learners. We endeavor to bring that same curiosity to every way in which we counsel our families.
Written by Thierry Brunel, Associate Director