This Is Exactly What Will Happen in 2025

Every year we are asked to make predictions about the next year because, well, that’s what everyone does at the end of the year.

It is a fun exercise, but my view is that it is the exact opposite of my philosophy of investing in markets.

I can either play along with the view that our job is predicting the future, or I can use this opportunity to explain why making sweeping predictions about the markets in a years’ time is pointless.

Perhaps that makes me sound like a grumpy old man. There are definitely signs that I am following in my father’s footsteps in that regard, but I’d prefer to see it as remaining true to my own world view.

The set of ideas you bring to the table when you look at markets decides what you see.

When your assumptions about the markets and the world in general are false, it doesn’t matter how hard you look, you won’t find a useful answer.

By stripping back what you think you know to its bare bones, you can start rebuilding from a solid foundation. Then you will receive useful answers to the questions you ask.

I spent many years trying to find ‘the answer’ to the markets.

Studying fundamental analysis, reading every announcement I could get my hands on, testing technical analysis methods looking for a ‘black box’ trading system (one that needs no human intervention at all).

I thought all I needed was the fact that I was a smart guy who worked hard. Eventually I would figure out an answer that worked for me and go from there.

But what if there is no answer?

Perhaps the task isn’t learning everything there is to know about a company and then magically knowing whether it will succeed or fail.

Remember, it is the one thing you don’t know that can bring you undone.

What if the path to consistent profits is through admitting your ignorance…rather than proving how smart you are?

When I cottoned onto the fact that I couldn’t consistently work out what was coming next, I started to listen to the market more deeply.

Rather than listening to whatever view my mind dreamed up about the reason for this or that happening, I released myself from having any concrete view at all.

Are you a bull or a bear?

What if being a bull or a bear is part of the problem. Don’t be either.

Just be an owl. Listen closely and make wise decisions.

To make a prediction about the path of markets in general over the next year is not only fanciful but possibly counterproductive.

Everything we do here at Fat Tail Investment Research is about helping clients to build wealth.

Will my guess about what will happen next year take you closer to your financial goals?

I don’t think so.

If anything it may confuse you, because you end up reading 10 different views that are contrary to each other. Then what are you supposed to do?

You are back at square one.

Would you ask a batsman (or batswoman..) as he walks out to the crease what he is going to score that day?

Is that what will decide whether he is a good batsman or not?

Of course not.

The batsman hasn’t got a clue whether he will get a duck or score a hundred that day.

But he will have a fair idea that he will average say 30 runs over his next 20 innings.

If you have ever played cricket, you may know what usually happens when you’re batting and decide on a shot before the ball is bowled.

There is a gap in the covers, and you tell yourself that’s where you should try and score some runs.

You will probably get out because you are playing the shot rather than reacting to the ball that is bowled.

A good batsman stands ready, without any view on what shot he will play next. He just trusts that he has the tools to cope with whatever will come his way.

He can’t predict whether he will get a bouncer or a yorker. It’s pointless trying to predict it and is counterproductive to do so.

His skill is in honing his ability to respond in the blink of an eye with the correct shot.

If the ball calls for defensive play he will do that. If the ball is terrible he will clobber it.

You should view trading markets in the same way.

You don’t need to predict what’s coming next. You just need to hone your skills, so that whatever happens, you remain standing.

If you can work out how to survive all market conditions, you will eventually have serious success.

If you are fabulous at trading bull markets but hopeless in bear markets, I’m sorry to say that you will end up losing your dough.

Accepting your ignorance and inability to predict the future is the very first step on the way to consistent profitability.

Because once you have accepted your ignorance, you switch all of your attention to the serious task of money and risk management.

Position sizing, taking part profits, sitting on the sidelines when volatility is high, executing stop losses without thinking, changing your view if price action changes.

You’ll have far more success focusing on those things, rather than trying to work out whether Trumps tariffs will crash the market or not.

I have a model of market behaviour that will tell me quickly if the current bull market is under threat.

Until those warning signs are flashing red I am not going to worry.

As Michael Jordan said, ‘Why would I think about missing a shot that I haven’t taken yet?’

The quote by Mark Twain at the start of this article is one of my favourite quotes of all time.

Personal growth is difficult if we don’t challenge our current world view. No one else will do it for us. If you are wearing glasses with a red tint, everything looks red.

You need to learn how to take the glasses off before you will realise your error.

I believe the obsession in the financial media with predicting the future is like wearing glasses with a red tint. I’ve taken mine off and I reckon you should too.

If you do that, you will have an immensely beneficial 2025. That’s my prediction!

Regards,

Murray Dawes,
Editor, Retirement Trader and Fat Tail Microcaps