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Here I go again on my own goin' down the only road i've ever known - news article image

Here I go again on my own goin' down the only road i've ever known

11 Jan 2021

4 minute read

There are times when you can’t beat a bit of 1980’s “poodle rock”; even more so when it’s co-written by a local boy (for those interested in that sort of thing Bernie is still in Buckinghamshire and until Covid hit was available for music lessons).

“I don’t know where I’m goin’

But I sure know where I’ve been”

As we move back into lockdown once again it can be very easy to apply this approach and say “why didn’t they do X when they had a chance”. The problem here is that, it may be a very legitimate comment however, it is difficult to remove the impact of hindsight from the equation (see my article of the 6 May for more on this). The longer the timescale over which you are looking back, the more bearing hindsight has. Looking back to last week, when the Government said “schools are fine to go back”, and thinking “well they obviously weren’t, were they?” may have some validity; looking back to August and thinking “why didn’t they cancel this current school year and start afresh in 2021” however is applying to six months ago, things which we only really know now.

One of the dangers from an investment perspective is that this application of hindsight works not in days or months, but in minutes or hours. With the speed at which information transfers and the increase in automated trading systems, the time horizon of knowledge and hindsight in investment markets is tiny by comparison with real life. We aren’t talking about last week versus August, but looking back to ten minutes ago versus looking back to two days ago. Even more so with more volatile assets, as anyone who thinks that Bitcoin is an investment rather than a gamble will understand – although they won’t admit it given the cult ethos which surrounds cryptocurrency.

So whatever decisions you make, you will generally be able to look back and see a better point at which to have made that decision, or a better decision that you could have made. It is important to recognise and accept this. If you are making decisions rationally, as part of a plan and in line with your objectives, that’s all you can, and indeed should, do.

“Tho’ I keep searching for an answer

I never seem to find what I’m looking for”

The other aspect of hindsight is the tendency to remember those things we said or did which are proved to be right and not remember those things which we said that turned out to be wrong. There’s always the one person who bet Foinavon to win, or invested in Moonpig when it first started up, or was there in the pub the night David Coverdale and Bernie had a few drinks and were persuaded to play a bit.

We see a lot of this from investment companies and especially people looking to sell their “expertise” and persuade clients to pay for blogs or newsletters or blueprints for success. What they don’t say is how many times they got it wrong; how many times they were late to the party; how many times it wasn’t that you didn’t act quickly enough but was that they were promoting something that had already happened and was more likely to peak and drop than continue to rise.

Again it is important to understand and accept that there will always be something that happened to be in the right place at the right time or make a decision which really works. One US fund did exactly that in April and has doubled in value. The year before that there was nothing that indicated this was likely to happen and although it had performed better than average in most of the previous five years, nothing about it indicated that it was any better than a number of other similar funds.

There will also always be someone who held that investment and if you know one, you’ve probably already been told by them that you know one. What you probably won’t have been told is that you know someone who was invested in one of the six US equity funds that lost money in 2020 despite US equities doing well. Although I would hazard a guess that there are more of the latter than of the former. Is it a case of one group being really good at this and the other group being really bad, or is it a case of one group getting lucky and the other group getting unlucky? We’d suggest that the second is most likely and the chances of this being replicated has been shown over the years to be slim at best.

So if you can accept and understand that hindsight can be interesting but if you allow yourself to get caught up in it you risk making bad decisions for the future and feeling continually disappointed, your life will be far more mellow and the likelihood of you achieving your objectives far higher.

“And I’ve made up my mind, I ain’t wasting no more time”

Here I go again on my own goin' down the only road i've ever known - news article image

Author:

Ed Gibson

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