How to invest in an uncertain future
I was listening to a podcast recently where they were discussing the current affairs and the geopolitical - and by extension economic and financial - uncertainty at the start of 2025.
It gave rise to two thoughts:
First that there is always uncertainty about the future, 2025 is not special or different; and
This uncertainty is why good financial planning is so important.
In the podcast, they referenced a declassified communication from the then US Defense Secretary, Donald Rumsfeld (of the unknown - unknowns coining) to President G W Bush in April 2001. The topic was setting strategy and policy for the next decade and to reinforce that the world changes quickly and unpredictably, he gave an outline of the previous 100 years. It makes for fascinating reading and so I have copied it in full below, and you can also read the actual document at this link here. For amplification of this message, this communication was sent 5 months before the 9-11 attacks in the US when again their defence world had all paradigms changed.
It being written in 2001 it mentions 2010 as the unknowable future, much as we look at the next 10 to 15 years now. It gives us pause to thought for the momentous changes that have occurred since that communication was penned, that would not have been foreseen, and how these events have shaped our lives. From the September 11 2001 attacks, the rise of the smart phone, social media, and the omnipresence of the internet shaping our lives, to electric vehicles, the rise and decline of globalisation, the emergence of cryptocurrency, and of course that great cloud the COVID-19 global pandemic which reshaped lives.
My point is that if you look back at any epoch, you will be able to identify advancements, developments, tragedies, and changes in norms that transformed society and the world thereafter. There is no reason to think the next 25 years will be any different.
This aligns closely to the Black Swan theory to which we subscribe: that one does not know what the future will hold; one should consider there will be unexpected momentous events, both positive and negative, that will have material impacts, and that will have what the author Taleb calls “retrospective predictability”. This last phrase means it will be rationalised in hindsight but virtually nobody saw it coming.
Our application of this at Black Swan Capital is that if we allow for that fact that these events will occur from time to time, we need to build resilience into your financial plan. We give advice, not on what the financial markets have just done, but by focusing on your goals and objectives and establishing the optimal way to get from where you are to where you want to be. That path will change over time as the world changes which demonstrates the importance of flexibility and that our ongoing advice service is essential. That is the value we add.
If you are concerned about how world events may be impacting your investments or plans for the future, or if you want to get a health check or second opinion, you can contact us by email at infor@blackswancapital.eu, or book an initial appointment, at no cost, at our website www.blackswancapital.eu. We will be very happy to speak with you.
Following is a transcript of the communication and again the link to the original document is here
Thoughts for the 2001 Quadrennial Defence Review
If you had been a security policy-maker in the world's greatest power in 1900, you would have been a Brit, looking warily at your age-old enemy, France.
By 1910, you would be allied with France and your enemy would be Germany.
By 1920, World War I would have been fought and won, and you'd be engaged in a naval arms race with your erstwhile allies, the U.S. and Japan.
By 1930, naval arms limitation treaties were in effect, the Great Depression was underway, and the defense planning standard said "no war for ten years."
Nine years later World War II had begun.
By 1950, Britain no longer was the world's greatest power, the Atomic Age had dawned, and a "police action" was underway in Korea.
Ten years later the political focus was on the "missile gap," the strategic paradigm was shifting from massive retaliation to flexible response, and few people had heard of Vietnam.
By 1970, the peak of our involvement in Vietnam had come and gone, we were beginning detente with the Soviets, and we were anointing the Shah as our protege in the Gulf region.
By 1980, the Soviets were in Afghanistan, Iran was in the throes of revolution, there was talk of our "hollow forces" and a "window of vulnerability," and the U.S. was the greatest creditor nation the world had ever seen.
By 1990, the Soviet Union was within a year of dissolution, American forces in the Desert were on the verge of showing they were anything but hollow, the U.S. had become the greatest debtor nation the world had ever known, and almost no one had heard of the internet.
Ten years later, Warsaw was the capital of a NATO nation, asymmetric threats transcended geography, and the parallel revolutions of information, biotechnology, robotics, nanotechnology, and high density energy sources foreshadowed changes almost beyond forecasting.
All of which is to say that I'm not sure what 2010 will look like, but I'm sure that it will be very little like we expect, so we should plan accordingly.
