I’m sitting on a bus headed south on Interstate 15 near Riverside, California at 11 pm and my body clock is telling me it’s two-in-the-morning. I’m at an age where two-in-the-morning is no longer easy, typical, or fun.
Happy New Year.
My much-better-half and I were on the East Coast with our children and our new grandson this past week. We had a wonderful time. Since we are well-acquainted with the vagaries of trying to make connections this time of year on account of winter weather, we made sure we had a direct flight home to San Diego tonight. The idea was to arrive home on Sunday evening in order to relax and refresh before the new business year began apace (and a fast pace it promises to be).
Unfortunately, weather still became a problem, but it wasn’t snow. The San Diego airport is fogged in, and we were diverted to Ontario, California. We were told about this development as we were preparing for landing. Surprise! We then trudged off the plane, were forced to wait for our luggage so that we could drag it outside only to stand in line, load our luggage onto busses and then climb aboard to head south. Of course the air conditioning is blasting and we’re shivering too.
After about an hour and 15 minutes of driving, we pretty much drive right past our house (the Interstate will take us within a mile or so of it) and then continue for another half-hour before we disembark at the San Diego airport to try to get a shuttle (after hours) to take us to our car to drive back north – along the very same route we had just travelled – and home.
Our plans have pretty much been blown-up. And that’s a pretty good metaphor for what investors face.
I had planned to start the year by writing about optimism bias – how we expect that things will turn out much better than they typically do – and how we overestimate our ability to impact and control the future (what Dan Kahneman calls the planning fallacy). That tendency is especially acute today on account of the difficult markets we faced in 2011, our general desire to want to put that tough year behind us and our longing to see clear skies ahead. Then my would-be point is illustrated for me in ever-so-frustrating and exhausting detail.
The number of variables we encounter when trying to live and act amidst uncertainty – in investing and in life generally – is immense. Modern technology has given us the chance to control our destinies in ways our predecessors could never have imagined. It is truly astounding. Indeed, that I can write and post this piece under these circumstances is remarkable. But that control is far more temporal and illusory than we wish to think (as my current circumstances show). In many ways, randomness rules.
Our job as investors, advisers and money managers is to plan carefully using the best available data and information and then to execute that plan with skill. But we also need to be prepared for the inevitable and often random challenges we will face along the way. We need to see, analyze, interpret and adapt in the face of an uncertain, surprising and difficult future.
Our best-laid plans will often be shot to hell, sometimes before they can even be implemented. Indeed, we should count on it. It’s how we adapt to what we face that will decide how well we do for our clients and for ourselves. Of course, it’s easier said than done.
Happy New Year.
1:30 am PT (4:30 am body-clock time) Update: Not surprisingly, there was no shuttle to be found. So we walked to the long-term parking lot, hauling luggage, before driving home. But now home and ready to collapse into bed.
Above the Market 