Uncertainty is Certain

When J P Morgan was asked in the early 1900′s on his view on what the market will do, he famously said, “It will fluctuate.” But a lot of people seriously believe that they can actually predict where the market will be, or where a particular stock or sector will be in the next few days, weeks or months. A lot of other people believe that there exist such people, and hence believe such people.

“Will the market be at 20000 or below 14000 by end of the year?”

“Will Stock A reach its price target of 123 in the next 6 months?”

“Will Sector XYZ beat Sector DEF in the next 2 quarters?”

A lot of people give confident answers to these questions. Which sometimes makes me wonder whether they are in the business of being correct or being confident. I think it is more of the latter. Because intuitively it seems to me that trying to predict prices, levels or direction of the market is a bit like trying to predict the team score or that of a batsman in a cricket match.

“Will India score 300 in the first innings?”

or like our latest obsession “Will Sachin get his 100th 100 in this series?”

Well – answers to both these sets of questions should be like the famous ad ‘No idea.’

Market levels are like the scoreboard. There is no fool-proof way by which one can predict the scoreboard and claim to do it accurately every time. One can use all the past data in the world, and analyze the pitch and the conditions as much as possible, but whether the batsman scores or loses his wicket really only depends on how he plays the next ball. And there will never be any certainty about what will happen on the next ball. So all you can do in cricket is to focus on the next ball.

Pretty similar to the markets or perhaps life itself. Well that may be carrying the metaphor too far. But all one can do is to evaluate every price that Mr Market throws at you and play it on its merit. On where it will go next, the answer is simple, ‘No idea.’

But even the greatest investors sometimes buy the wrong stocks at the wrong time, like the greatest sportsmen sometimes make the mistake of playing at a ball they should have left alone. Warren Buffett knows that, and so does Sachin Tendulkar. So sometimes they lose their wickets when they shouldn’t have.

But then the game continues. You come back again and get ready to focus on the next ball thrown at you. If you play it well on its merit, you don’t lose your wicket and score. That’s the only certainty in the game of glorious uncertainties. It is a simple game really.