Once upon a time, there was an old farmer who had worked his crops for many years.
One day his horse ran away. Upon hearing the news, his neighbors came to visit. “Such bad luck,” they said sympathetically, “you must be so sad.”
“We’ll see,” the farmer replied.
The next morning the horse returned, bringing with it two other wild horses.
“How wonderful!” the neighbors exclaimed. “Not only did your horse return, but you received two more. What great fortune you have!”
“We’ll see,” answered the farmer.
The following day, his son tried to ride one of the untamed horses, was thrown, and broke his leg. The neighbors again came to offer their sympathy on his misfortune. “Now your son cannot help you with your farming,” they said. “What terrible luck you have!”
“We’ll see,” replied the old farmer.
The following week, military officials came to the village to conscript young men into the army. Seeing that the son’s leg was broken, they passed him by. The neighbors congratulated the farmer on how well things had turned out. “Such great news. You must be so happy!”
The man smiled to himself and said once again.
“We’ll see.”
Most things in life come with a degree of uncertainty. However, our human brains prefer stability and conviction, so often we artificially create a narrative of assurance that X, Y, or Z will happen. Plus, if you are a supposed expert on something – be it investing or politics or macro-economics - it does not create a good look when you are asked a question and your answer is, “…there is no way of knowing for certain.” With that response, as authentic as it may be, you probably won’t be asked to commentate again.
With so much inevitable uncertainty in the world, it is vital to stick with the basics and ask yourself, what can I control, what can I influence but not control, what can I be aware of with neither influence nor control, and what is simply beyond even my realm of awareness. When you put things into this framework, your chances of long-term success (and short-term peace of mind) go up dramatically.
By way of example, despite the headlines proclaiming certain economic victory (due to expected deregulation, etc.) – and indeed a temporary stock market euphoria upon a changing administration – the reality is that no one knows for sure what will be implemented, let alone the near and long-term implications of such policy changes.
So what is an investor to do? Go back to the basics and ask yourself the following questions: am I well diversified? Do I own the highest quality companies? Do I have an appropriate allocation between stocks and fixed income given any cash needs in the next few years? Is my spending less than my income?
When you get the basics right, you dramatically increase the chances that you will achieve your goals and be able to sleep at night along the way. If you are trying to track – and invest based on – the latest headline or machination coming out of Washington, you will not only raise your cortisol level materially, you will probably harm your future bank account on a relative basis by zigging when you should be zagging.
If you have a well thought out plan in place, then taking no action, and quietly saying to yourself, “…we’ll see…” is often the best course of action.