Mayar Predictions for 2021: Markets will be up, down or flat. Maybe.

The end appears to be in sight. After an unprecedented year that has affected everyone on the planet to some degree, the light at the end of the tunnel may not be a train coming the other way after all. The progress of several vaccines from projects on either side of the Atlantic have shown promising signs. Promising enough to believe that we are about to emerge from the other side of the COVID-19 tunnel.

No doubt you will have seen that strategists/economists/bankers - the “experts”, have collectively sent their beautifully-formatted reports, done their TV interviews on CNBC, and shared with all of us where next for their outlook of where the S&P 500, treasuries, commodities, and major currencies are heading in 2021.

The private bankers have paid their (Virtual!) visits to their clients and shared their nuanced take on their “house’s view”, marginally differing here and there and further contributing to the charade of perceived accuracy and false sense of certainty.

Doubtless too, you’ve heard from the “cautiously optimistic” crowd, who have hedged their bets and will be able to claim predictive victory whether their clients’ portfolios go up or down over the next year or so.

The investment industry is obsessed with prediction, but the whole thing is nothing but a tremendous display of overconfidence. History shows us that the predictions that this group of “experts” make are no better than random. Just looking back to the start of this year, 2020 will be notable for many things. Included in that list should be the time it took for those annual predictions, issued in January to be proven wrong.

Yet over the next few weeks the return of the predictions bonanza will be with us. Under constant pressure from clients who demand answers, they find themselves unable to say: “I don’t know”. Perhaps the hardest three words to utter on Wall Street.

Yet the reason those pundits are usually wrong is not that they lack intelligence or data. It is because what they are trying to forecast is inherently unforecastable. Yet, unfortunately, the investment industry has trained its clients to expect confident predictions, and there’s no short supply of experts willing to make them.

We take the opposite approach at Mayar. We embrace “I don’t know”. We believe that forecasting the future is always uncertain. Some predictions, like the level of the S&P in twelve months, are virtually impossible to make, so we don’t pretend to. Instead, we try to make decisions that require us to make the fewest number of predictions as possible. My colleague Aubrey talks about “Occam’s Investment” which he defines as the investment that requires the least number of assumptions is likely to be the better one. We hold that principle dear.

We want to make investments that would produce satisfactory results for us over the long run without requiring us to predict with accuracy, several dozen variables to the 2nd decimal point. We prefer to be approximately right instead of precisely wrong. We accept our fallibility and know that every investment we make will have at least some uncertainty associated with it. That’s why we demand a margin of safety.

We also accept the uncertainty associated with the time required to achieve our goals. Our investment strategy doesn’t work every month, or even every year. It works over time. It requires a long-term orientation and acceptance of the fact that we will have many short periods of underperformance. That acceptance allows us to make decisions that might have uncertain or potential negative short-term results but are very attractive for the long run (see our Partnership Principles #3).

It means that in some periods we may sit on cash patiently instead of making investments that do not meet our criteria. When others are making money betting on the latest trend or fad, we smile and move on. We must genuinely have “No Fear of Missing Out” (No FOMO). It doesn’t make us as interesting as “that guy” at the cocktail party, and we probably don’t have the most interesting dinner conversations, and that’s ok. We prefer boring. Boring works for those who wait. Boring is beautiful.

It is here that I must emphasize two very important points that the successful execution of our strategy requires: choosing the right partners and nurturing a healthy relationship with them. We have been blessed to have an investor base that understands what we’re trying to do. Our AUMs would have been many times larger had we been willing to accept any investor into Mayar, but we view our relationship as a partnership and a necessary condition of the success of partnerships is an alignment of expectations.

Nurturing a healthy relationship between partners is a shared responsibility. It is our duty to communicate with our partners honestly, clearly, and regularly. We invite our partners to read what we write, ask questions, challenge us, and hold us accountable to the promises we make. That’s the only way to make sure we are all on the same page.