Over the weekend I read Venture Capitalist Brad Feld’s post Ignore Trends and PredictionsÂ and thought it was great advice for not only VC investors but others as well.
This is the time when you will see a slew of articles on what to do in 2013, the best places to invest etc. and while all these are well meaning and have some utility in terms of what new products have been introduced in recent years, what has been doing well etc., there isn’t much more to this beyond that .
This is what Brad Feld has to say:
Every year, at this time, I get a flurry of requests for my â€œpredictions for 2013â€ or â€œexciting, hot, new trends for 2013 that Iâ€™m looking at.â€
I respond with â€œI donâ€™t care about trends and my only prediction is that one day I will die.â€
This is usually not a particularly satisfying response to whomever sent me the request. One of two things happen: They either ignore my response and drop me from their prediction request list for whatever article they are writing. Alternatively, they press a little further, usually with something like â€œcâ€™mon, youâ€™re a venture capitalist â€” you must have an opinion about what is going to be hot next year.â€
Actually, I donâ€™t. I have never been a short term investor, and I donâ€™t think entrepreneurs should be short term thinkers. Creating a company is really hard and it almost always takes a long time. Sure, there are occasional short term success stories â€” companies founded two years ago that get bought for $1 billion, but these are rarities. Black swans. Things you donâ€™t see in nature and canâ€™t count on.
In an Indian context – it is easy to see how this is applicable. In November last year, I did a post along the same lines (Read: Which is the best place to invest?) in which I compared returns on stock, gold and fixed deposits for the past five years, and showed how differently each asset class behaved every year, and how it was virtually impossible to predict what will happen in the next year.
I have updated the chart with data for 2012, and here’s what it looks like now.
For anyone who remembers how the sentiment was last year, you would remember how nobody said this is the year to buy stocks and certainly no one predicted that stocks will do twice as well as gold in 2012.
Most of the times our prediction about the future is just that it will be more of the past and that is seldom right. The good news however is that you don’t need to make predictions or be right every year, as long as you are right long term with your goals and asset allocation.