M&A Investor Insights (Part 3 of 5): Predicting the Future
How successful have you been predicting the future? Sometimes we get lucky predicting the likelihood of events taking place at some point but doing so accurately is not a reasonable expectation. This holds true not only for the pricing of investments, but also regarding political changes, regional wars, famines, floods, and pandemics. If we’re being honest with ourselves, predicting the future with precision is a near impossibility and, consequently, we do not make important investment decisions based upon such whims.
When we observe the real estate housing market having doubled over such a short period of time, many experts have admitted that such a turn of events was not readily predictable especially as we entered the global pandemic. In fact, many experts had predicted the very opposite for many good reasons! As the real estate market sits today, in a highly elevated state compared to just a few short years ago, we do not know with any degree of certainty what the future might hold for valuations:
- Will prices drop significantly over the coming few years?
- Will prices continue to grow somewhat?
- Will prices stagnate over the coming decade and then grow again?
The challenge with predicting the future of prices is that each of the aforementioned possibilities could be correct! To complicate matters further, the future of the real estate market will likely differ quite significantly depending upon one’s location (city, province, and county). Throw in a few wild variables such as the onset of a brutal Russian war, China extending COVID lockdowns while the rest of the world reopened, hundreds of billions of savings sitting idle in Canadian bank accounts, a hurricane wiping out oil refineries, new technologies which replace old energy sources, or first contact by an alien race…
Now what happens with prices?
Kidding aside, we begin to see that the price of almost anything we can measure is affected by a countless number of global variables which are too complex to reasonably understand. As a consequence of this truth, we need to rely upon the notions of wisdom, prudence, and patience to guide our paths forward. Professional portfolio managers know precisely how to handle a myriad of market conditions and it’s in our best interests to allow them to do their professional best.