Happy New Year! Welcome to 2018. I hope you enjoyed a wonderful holiday season.
The new year always seems like a time of predictions; of looking forward and surmising what the months or years ahead may bring. But the true test of predictions isn’t how well they stand up in the short term, but rather, how will they fare in the long term. The question we have to be asking ourselves about predictions is: will they matter five years out?
If analysts are predicting the Canadian dollar will rise to US$0.83 in 2018, or oil prices will increase to US$65 per barrel or interest rates will go up two percentage points, will it matter five years from now? The answer in all of these instances is no. Short-term investors, of course, will have a different view, but if you are a buy-and-hold investor, then these predictions will mean very little.
There’s also the question of predictions versus reality. If we look back at the predictions analysts and pundits made at the beginning of 2017, I would suspect that at least half of them never came to be.
People love predictions. They love wanting to know in advance what the future holds. But at the end of the day, predicting the future is a mug’s game. The only time predictions may be of any value is when it concerns a long-term objective, such as infrastructure spending. That’s the kind of thing that may matter five years down the road. That’s the kind of thing investors want analysts to get right. Yet, even then, few are held accountable for any of the predictions they make. If they get it right, they shout it to the rooftops. If they don’t, they remain silent and move on to the next prediction.
Thoughts, not predictions, on where 2018 may lead
Of course, having said all of that, I do have some thoughts about where the year ahead may go.
I expect interest rates to rise, though not dramatically, and not to a point where it will pinch or punch in any way. Similarly, I anticipate inflation will remain subdued and global growth will trend around 2%. I see us heading into a “new normal,” where things make more sense — with neither spectacular growth nor heart-stopping declines.
The evolution of technology has been picking up speed in a rather dramatic fashion in the past five to 10 years. I expect this trend to continue, at a faster rate than we could anticipate and to play an increasingly larger role in our lives. We will order more online with a simple command or gesture to Apple’s Siri or Amazon’s Alexa or Google’s Assistant; allow autonomous vehicles to drive us around; have refrigerators order our food when things get low; and enable our smart devices to alert, advise and guide us on every event or interaction in our lives.
When I was visiting my daughter in Rhode Island over the holidays, I took the opportunity to tour some of the old mansions. They were built by the titans of industry — the Vanderbilts, the Astors, Edward Berwinds and Isaac Bell — during the Gilded Age. They featured all of the latest advances: electricity and light fixtures, plumbing, boilers for heating, and ice boxes to keep perishable goods cold with ice that was cut from the lake during the winter and brought up by horse drawn carts to be stored in sawdust to be used year-round.
The technology journey we’ve traveled in little more than 100 years is jaw-dropping. There is no way anyone sitting in one of those mansions 125 years ago could in any way fathom where technology would lead. Similarly, as we sit in our air-conditioned or centrally heated homes with every modern convenience imaginable, everything around us connected to everything else, it’s hard for us to imagine where technology will take us 125 years from now.
What we do know is that technology growth is good for growth overall. It keeps a lid on inflation as the pricing power of companies remains weak and will continue be so. Wage pressures, other than those mandated by governments, will also continue with wage increases being muted at best.
Slow and steady still wins the race
This, of course, leads us to investing. For as much as technology is advancing us as a society in ways that we’ve never imagined, the economy is the same as it ever was: buy low, sell high. The principles of investing remain the same too: buy and hold. Overlook the potential windfall of the “next big thing” in the short term in favour of stable, consistent gains over the long term.
No matter how fast technology moves, when it comes to investing, slow and steady will inevitably win the race.
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