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How To Predict The Future

October 24, 2011 Leave a comment Go to comments

As we’re seeing now, something that is a doomsday scenario one month can be a positive outcome the next month. This gives us a good reminder of the context around predictions for the future. For example, the big question in Canada is where interest rates will go. Everyone who is asked will happily tell you what is “sure to happen”. There are a lot of reasons to believe they will rise slowly, but the story is only clear once it’s already happened.

Did americans in the 70s expect to be hit by over a decade of crushing inflation, only ended when the Fed got a chairman who raised interest rates without a care for his future career? Or did they see what seemed like a normal and gradual increase at first, and only make sense of the shift after it hit them? Of course this is just one small part of financial history. A couple of years ago I expected a faster recovery and a steady increase in interest rates, but hidden problems have dragged things out for far longer and we don’t know when they will end.

This is the best way to predict the future. Don’t just take the most likely outcome, even if it is really the most likely. Instead look at a variety of possible scenarios and past results to get more depth. Yes it’s confusing. But you have a much better chance of knowing what’s coming if you really try.

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