Everyone’s Crystal Ball is Broken

Jun 2020

The “Experts” are Lost

COVID-19 has unfortunately brought great economic, medical and financial turmoil to many around the world. The resulting lockdown on the global economy is unprecedented, and naturally the true effects of unprecedented events are hard to measure in real time — and even harder to predict.

U.S. unemployment has reached record highs (14.7% as of Q1 20201), while GDP has contracted by 4.8% over the previous quarter (the chart below puts that change in historical context).

Real GDP: % Change from Previous Quarter

The impact is undeniably large, and amidst so much uncertainty there is a question that everyone wants to know — what happens next? Surely the “Experts” have a good idea.

Enter the Experts

When we started the year, it would have been hard to imagine that we would spend as much time hearing from virologists and economists as we have. It is always good to hear the opinions and perspectives from those that have more domain experience than ourselves, however there is one problem — many of these domain experts have completely different opinions, leaving us somehow less sure of the future than before. We have heard differing views on everything from how the disease spreads, to economic reopening dates, to the efficacy of masks. However, most recently the difference in expert opinion can be best highlighted in the GDP forecasts for the current quarter.

Do Great Minds Really Think Alike?

Source: Charles Schwab

Statisticians often say, “All models are wrong, some are helpful.” When we look at these “Expert” forecasts for GDP, there is such a wide range of expected outcomes that it is hard to even deem them helpful. If nothing else, this lack of consensus tells us that, in aggregate, these “Experts” are about as unsure as anyone else on the economic future. If an investor were to try to make investment decisions based on a single one of these forecasts, their chances would be no better than a roll of the dice; surely not their intentions with something as important as their financial futures.

Setting the Crystal Ball Aside

There is certainly a sensory overload in times like these. The events taking place are unprecedented and simultaneously life altering. All of the headline news and expert forecasts can cause many investors to make decisions that are ultimately not in their best financial interest. This is exactly the reason that we started Blue Square Wealth.

You Deserve Better

At Blue Square rather than trying to predict the future, we aim to prepare for it, regardless of its direction. Using our proprietary technology and rules-based approach to investing, our decisions are not swayed by predictions or emotions.

Our investment strategy has a risk management focus that aims to position portfolios defensively during significant market declines. By systematically raising cash during these periods and then investing it when markets are more accommodating, we aim to create a less volatile investment experience, and ultimately deliver better risk-adjusted returns over full market cycles.

1) Source: Bureau of Labor Statistics, as of Q1 2020

All investment strategies have the potential for profit or loss; changes in investment strategies, contributions or withdrawals may materially alter the performance and results of a portfolio. Different types of investments involve varying degrees of risk, and there can be no assurance that any specific investment will be suitable or profitable for a client’s investment portfolio.