Question the Expectations

With all sorts of excitement in the world, I found myself reaching for Howard Marks’ book, The Most Important Thing this week to revisit a few highlights.

Marks quotes John Kenneth Galbraith, who once said, “there are two types of forecasters: those who don’t know and those who don’t know they don’t know.”

A forecast is just a fancy word for an expectation. We’re constantly bombarded by people expounding on their expectations. The future of social media, gun laws, Bitcoin, recession indicators… take your pick.

There’s an old expression that goes, “where you stand is a function of where you sit.” In other words, wherever you “sit” (ex. your job, your home, your upbringing, etc.) is going to influence what you “stand for,” including your expectations.

What Marks is getting at when he quotes Galbraith, is that having expectations is different from actually having a process. We all know the person (or the pundit) that knows with certainty what is going to happen next. “This leads to that!” He doesn’t know he doesn’t know, and that’s a problem.

Marks teaches that expectations alone are useless. A process, or key steps, or a checklists to complete along the way to arriving at your expectations – that’s what has value.

A process leaves room for new information and mistakes. A process makes “not knowing” OK. A process allows room to change your mind. A process should help to offset the risk that where you sit is the sole determining factor for your expectations.

“To the man with a hammer, every problem looks like a nail.” A process is what turns a nail into nuance. A process can be the eyeglasses that we put on and say, “hey, you’re going to need a screw driver for this one.”

A process helps us to expect one thing, but not be too surprised when something else occurs. A process gives us something to troubleshoot instead of just shaking our fist at the sky.

Galbraith is right, there really are only two types of forecasters. Question the expectations and focus on the process. Always.

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