Only Donald Rumsfeld Can Predict the Future

When the U.S. invaded Afghanistan looking for Osama Bin Laden, then Defense Secretary Donald Rumsfeld appeared in a news conference to announce the following:

"We do know of certain knowledge that he [Osama Bin Laden] is either in Afghanistan, or in some other country, or dead."

Well, that pretty much covers all the options.  I mean, it's hard to ever be wrong with a statement like that.  So this has become one of my favorite quotes, because it can pretty much be applied to all predictions.  Especially financial predictions.  Do you ever read those headlines in the financial section that ask things like "Is the market just taking a breather, or is this the beginning of a bear market?"  Well, yes, it's probably one of those two things.  Or neither.  Or the articles that tell us how "technical analysis suggests that if the market breaks above 1200, then we might really see it go much higher from there."  Well, yes, we might.

We all want to know what the market is going to do next, and we think there must be some really smart person out there who knows, and can save us from making a terrible mistake and losing tons of money.  But the smartest people out there know better than to try and tell you what's going to happen, so they tell you what COULD happen, which leaves them generally safe if it doesn't.  

Now periodically, someone boldly claims he KNOWS which way the market is going next.  None of those wishy-washy "could's" and "might's", just "wills", and "musts"!  They command you to "get out of healthcare now!" or "buy energy stocks now!"  And who ever calls them on it if they're wrong?  Nobody!  By then we've already moved on to the next headline, and we've forgotten who said what last week.

So a few months ago, Bill Gross, probably the biggest bond guru out there, told everyone to get out of US treasuries, and his fund dumped the bonds en masse.  Ooops.  Yesterday he said, Remember what I said a few months ago?  Yeah?  Well, that was clearly a mistake.  So if Bill Gross made a wrong call on bonds, doesn't that mean that everyone else has at least as much of a chance of being wrong as of being right?  No matter who tells you they know what's going to happen next in the financial markets, they don't.  Not your neighbor, your stock broker, or even the REALLY big experts.  They're just playing odds.  The only proven method for improving your odds of successful investment is to diversify your portfolio so that you have some of those  "could's" and "might's" covered.

Okay, so what did we learn here today?  We learned that no one can predict the future, except Donald Rumsfled, because his predictions cover the full range of possibilities.  If you want to successfully predict the future, just name all the possible outcomes and you're good. 

So the next time you read a headline that asks, "Is this the time to buy Apple?" Think of Donald Rumsfeld, who also said:

"I would not say that the future is necessarily less predictable than the past. I think the past was not predictable when it started."