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Knowing the Future Doesn't Always Help You



On a December 2023 investor call, Murray Stahl (of investment manager Horizon Kinetics), shared the following information:

 

  1. The Van Eck gold miners ETF (GDX) has an inception date of 5/2006.  The annualized return from inception to 12/31/2023 is -0.6%. Yes, that's negative 0.6% per year for more than 17 years...Stahl noted that the per ounce price of gold is about 3x higher today than it was in 2006. 

 

  1. The iShares regional bank ETF (IAT) has an inception date of 5/2006.  The annualized return from inception to 12/31/2023 is 1.5%. And here, Stahl noted that central bank monetary policy has been exceptionally accommodative over that time period, which most investors would consider to be positive for banks. Yet an investor may have been better served putting their cash in a bank than buying the bank ETF.

 

  1. The iShares Oil equipment & services ETF (IEZ) also has an inception date of 5/2006. The annualized return from inception to 12/31/2023 is -3.5%. Remarkable but yes - that's negative 3.6% per year for more than 17 years. Stahl noted that the price of WTI is about the same in nominal terms as it was 5/2006.

 

The point is that knowing the future doesn't necessarily help you in investing. Knowing the future price of gold; knowing that monetary policy will be exceptionally accommodative or restrictive; knowing that the price of oil will be volatile but will hold its ground - none of it helped the investors in these ETFs in 2006.

 

The answer isn't abandoning all attempts to understand the world and how it is likely to evolve - there is value in thinking through different scenarios and possibilities. But we need to do that with a deep sense of humility for the economy's complex, adaptive nature. And there's value in taking a wider perspective: yes, one factor may be a potential tailwind; are there other factors that might become headwinds? Valuation? Capital flows? How other market participants respond? Changes in the factors of production?

 

Invest with hubris and certainty, on the one hand; shrug our shoulders and give up, on the other. 

 

We prefer a third approach: invest with a wide lens and with a margin of safety – and plenty of humility. 

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