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Forecasts vs. Expectations

We were fortunate this week to have one of the best writers in the investment world join us today for a Zoom discussion. Morgan Housel is a partner at the Collaborative Fund, a $300 million venture capital fund based out of New York and San Francisco. He is also a former columnist at The Wall Street Journal and The Motley Fool.

Morgan is a decorated writer. He is a two-time winner of the Best in Business Award from the Society of American Business Editors and Writers, winner of the New York Times Sidney Award, and a two-time finalist for the Gerald Loeb Award for Distinguished Business and Financial Journalism. His work was featured in The Best Business Writing published by the Columbia Journalism Review. He is also the author of the soon-to-be-released book Psychology of Money. You can read Morgan’s excellent writing here.

Morgan writes specifically about the behavioral side of investing and using history as a guide to making investment decisions. Morgan, Doug, and Greg touched on several topics on behavioral finance during this session, but the one topic that continues to resurface is the idea of Expectations versus Forecasts.

As Morgan states in a recent article,

If I say, “The next recession will begin in 2024,” I’ve made a forecast.

If I say, “Recessions occur roughly every 5-10 years,” I’ve expressed an expectation.

They seem similar, but they’re very different.

Forecasts rely on knowing when something will occur. Expectations are an acknowledgment of what’s likely to occur without professing insight into when it will happen.

If we have an expectation that interruptions will occur on a somewhat regular basis, we can structure a plan to address those occasional interruptions. We are not surprised by the interruption because we have designed a financial plan centered on expectations, not forecasts. Investing is not a game of exactness. As the saying goes, its better to be approximately right than exactly wrong.

Enjoy this 25-minute conversation between Doug, Greg, and Morgan. Have a safe weekend.

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