I was recently asked whether we should tailor our investment strategy to account for the imminent Third World War.
I answered by recalling my first job as an investment sales consultant. I had the displeasure of selling the dismal performance that followed the team’s bet on gold during the Gulf War – a war that ended sooner than predicted. That scarring experience led me to question high-conviction investment strategies.
It’s a good example of how predictive strategies can go wrong, but it’s not a thorough exploration of the question.
I think the question is rooted in fear – the fear that, looking back from the future, war would seem like the obvious outcome. This human tendency is known as hindsight bias: after a big event, we say it was clearly going to happen.
There are many possible outcomes before an event, each with different likelihoods. But it’s easy to forget those potential paths after the fact.
And a good outcome does not necessarily follow a good decision. You could experience a good outcome because of a bad decision, or simply luck.
In my story, the investment team might have been vindicated had the war continued longer and gold sustained its rise. It would still not have been a good decision, because so much hinged on that one bet.
Decisions must be judged by the process – the range of potential outcomes considered, the facts available at the time, and the acknowledgement that unforeseen outcomes are always possible. This decision-making stance requires intellectual humility.
Returning to the question: a world war cannot be ruled out, but it is not the only possible outcome. And even if we predict the war correctly, its impact on financial markets remains unclear. There may be many outcomes we cannot foresee.
Our investment portfolios should be built on the acknowledgement that we can’t foresee all outcomes - on probability rather than certainty. Our portfolios should remain positioned for uncertainty and remain diversified.
Good life plans should follow the same logic. We should continually ask whether our decisions are rooted in humility and whether our plans can succeed across a variety of outcomes. And when our decisions don’t produce good outcomes, we should look back with grace at all the potential futures that existed at the time.
As the future grows more uncertain and changes faster than we could ever imagine, humility in decisions and grace for our outcomes may stand us in good stead.
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Kind regards,
Sunél
