Dear Financial Voice Reader,
Five years ago, I was a single man, rowing down the Mekong river in Laos. Now, I am a dad.
When giving a talk recently in Hong Kong and Singapore about forecasting the future, I gave people some examples of the importance of humility predictions. Traders not often have a 5 year outlook. At my lectures I used to give on behavioural finance as a Visiting Fellow in Business at Oxford University, I would give the following examples to avoid one of the most pernicious causes of bad trading in my view: confirmation bias – the strength of belief in our beliefs. I’ve updated these examples, and price data is approximate to the time of writing.
5 years ago, 2013 would you have possibly forecast any of these?
In the FTSE 100 the biggest riser, five years later, in 2018, would be what? Perhaps a company involved in defence and tapping global growth such as Rolls-Royce ? Perhaps if you foresaw a massive bull market that we now have, you would say a bank? Maybe Standard Chartered, Barclays?
Actually all those companies ended those five years since 2018 in negative territory.
Well surely the best performer covering a period including Brexit would not be a British Airline or the London Stock Exchange and big bets on Britain such as property companies.
And, there is no way it would be something as esoteric as a healthcare company from the Middle Easy.
Actually NMC Health – up 1000%+ in five years and others doing well, London Stock Exchange up 200%+ and the property companies such as Barratt, Taylor Wimpey all doubled in those 5 years too.
Let’s look at the US stocks:
Did you forecast the boom in Cryptos? If you did, did you think mining would boom and then that it would be graphics cards to mine? And so it is that of the Nasdaq 100 – that NVIDIA rose 1,700%+ in 5 years.
5 years ago would anyone have thought Tesla would rise 800+%? Others from Nasdaq 100 with the rise of cyber threats we all knew in 2013 we would expect Symantec to have done a lot better than an 11% rise.
And surely Starbucks could not double in size in the same period – but it did. So did age old Intel.
Would you even have forecast that Microsoft would be a better trade then Apple over that time? What about Amazon being even better than both of those and Netflix beat them all with a near 1000% rise.
As for currencies – did you see the rise of Trump and so USD – Mexican Peso rising 50%? And of all the major currencies (EUR, USD, GBP, JPY) with all the global turmoil of the past 5 years, who would have thought the biggest mover would be USD/EUR – a change of…6%.
Conclusion
In the business of trading, whether 5 minutes or 5 years, it is important to remember a sense of humility when it comes to your strengths of beliefs. As has been said before, ‘it ain’t what you know that will get you in trouble, but what you know, that ain’t necessarily so’. The best traders will lose their opinion before they will lose their money.
Alpesh B Patel (@alpeshbp https://www.linkedin.com/in/alpeshbpatel/ )
Alpesh has a free financial education course: www.alpeshpatel.com/webinarspecial
