Financial advisors frequently quote others and offer their own opinions about the future of the financial markets. If predictions come true – at least in part – the person making or echoing the prediction gains confidence. This confidence often leads to an air of invincibility, sometimes resulting in “Guru” status. When educated, experienced, often well-intentioned people make predictions THEY CAN BE AND OFTEN ARE RIGHT,but seldom – if ever – are they always right. When they are wrong, they can make statements and predictions that become their legacy, regardless of past success.
Consider these predictive statements made by acknowledged experts:
“The phonograph has no commercial value at all.” – Thomas Edison, American inventor, 1880s
“Stocks have reached what looks like a permanently high plateau.” – Irving Fisher, Professor of Economics, Yale University, 1929.
“I think there is a world market for maybe five computers.” — Thomas Watson, Chairman of IBM, 1943.
“Where a calculator on the ENIAC is equipped with 18,000 vacuum tubes and weighs 30 tons, computers in the future may have only 1,000 vacuum tubes and weigh only 1.5 tons.” – Popular Mechanics, 1949
“In all likelihood world inflation is over.” – International Monetary Fund CEO of the International Monetary Fund, 1959.
“We don’t like their sound, and guitar music is on the way out.” – Decca Recording Co. rejecting the Beatles, 1962.
“Remote shopping, while entirely feasible, will flop – because women like to get out of the house, like to handle merchandise, like to be able to change their minds.” – TIME Magazine, 1966, in one sentence writing off e-commerce long before anyone had ever heard of it.
“With over 50 foreign cars already on sale here, the Japanese auto industry isn’t likely to carve out a big slice of the U.S. market.” – Business Week, August 2, 1968.
“There is no reason anyone would want a computer in their home.” – Ken Olson, president, chairman and founder of Digital Equipment Corp., 1977
“Why would anyone buy tech stocks at a time like this? Because this time it really is different.” – Robertson Stephens & Company, 1999
Predictions can come true at some point – but they many not always be true at all times. When we advise based upon prediction, we are doomed to inevitable failure, in part due to technological progress and the human will to innovate, achieve, and progress; in other words, CHANGE. The world’s knowledge doubles every three years, and we need to open to the possibility of change.
Clients expect and require guidance, however. You are expected to have an opinion, and you should have one, but an opinion is different than a prediction! So in an ever changing world, how does the professional advisor provide value? How can we help these clients make good decisions without the need for the advisor to predict or forecast the future with the tone and conviction of a prophet?
Advise Based Upon Principles, Not By Prediction
Principles are fundamental, primary, or general law or truth from which others are derived: Principles are guides. Principles exist that always work when it comes to long-term, prudent planning. Some of these general principles include:
- Diversification
- Asset Allocation
- Professional Management
- Seek Quality
- Save 10% Of Income
- Insure Those Risks That Cannot Be Individually Predicted
While this list is no means all inclusive, building a list of sound, proven principles provides a multi-purpose tool for the prudent, professional advisor. What other principles would YOU add to this list? What do YOU use construct a foundation by which you render professional advice? Do your clients KNOW and UNDERSTAND these principles you use to provide your best advise & recommendations?
Work Hard & Have Fun!™
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