Each of us is blind to the future. There is no way to know what is going to happen in the stock market, or world as a whole. This is true despite evidence we may find, real world observations, or the opinion of a supposed expert. We are merely estimating when we try to decide that one business will out perform another, or that one asset class will be preferable to the next.
Benjamin Graham’s answer to this was to split your portfolio 50-50 in stocks and bonds so that half your wealth remains safe, while the other can potentially appreciate in the market. With knowledge of the future, which Graham of course did not have, we know that this is probably not the best advice. Bonds are likely to be seriously wealth destructive in periods of inflation and not as safe as he seemed to think.
However, this actually makes his point stronger. There is no “safe-haven” asset, nor is there a “sure-winner”. To succeed in wealth preservation or growth, you need to understand that your perspective is limited and what you do know may be incomplete, inaccurate, or clouded by bias.
Let your humility guide you in the markets.
Connections
Act On The Present, Not Forecasted Futures
Link Explanation: The note linked above discusses the importance of reading the market and allowing that to reflect your positioning, rather than trying to predict where the market will be tomorrow. This is actually very similar to what Graham discusses in the section of the book above. While he recommends a 50-50 bonds/stock portfolio, he also discusses how the active investor may choose to alter the positioning to 75%-25% in either direction depending on the market. Although, the note above, inspired by Howard Marks, would probably not agree on the asset classes recommended.
You can be right, but look wrong for a long time
Link Explanation: The essence of the linked note is that markets will not always do what will make sense. Because of that, you need to be honest, thoughtful and unemotional in developing a thesis and the conviction to hold through irrational downturns in the market. All of this is fundamentally associated with the current note in that it requires the trait of humility discussed above.