This blog post originally appeared on
on Dec. 21 at 8:49 a.m. EST.
"Never make predictions, especially about the future."
-- Casey Stengel
If there are three lessons to have been learned from the past decade, they are as follows:
- how wrong conventional wisdom can be;
- that uncertainty will persist; and
- that the occurrence of Black Swan events are growing in frequency.
In late December over the past seven years, I have taken a page from former Morgan Stanley strategist Byron Wien, who is
now Vice Chairman of Blackstone Advisory Services
, and prepared a list of possible surprises for the coming year. (
is Byron Wien's surprise list for 2009; his picks were most prescient!)
These are not intended to be predictions but rather events that have a reasonable chance of occurring despite the general perception that the odds are very long. I call these "possible improbable" events.
The real purpose of this endeavor is to consider positioning a portion of my portfolio in accordance with outlier events, with the potential for large payoffs. After all, the quality of Wall Street research has deteriorated (in some measure because of brokerage industry consolidation) and remains, more than ever, maintenance-oriented, conventional and groupthink, even despite the mandated reforms over the past several years. Mainstream and consensus expectations are just that, and in most cases, they are deeply imbedded into today's stock prices. If I succeed in at least making you think about outlier events, then the exercise has been worthwhile.
Once again, 2009 proved how wrong "groupstink" and conventional wisdom can be. As Frank Rich writes in Sunday's
New York Times
: As a society (and as investors), we are consistently bamboozled by appearance and consensus. Too often we are played as suckers as we just accept the trend, momentum and/or the superficial as certain truth without a shred of criticism. Just look at those who bought into the success of
, the financial supermarket concept at
, the uninterrupted profit growth at
, housing's new paradigm of noncyclical growth and ever-rising home prices in the early to mid 2000s, Saddam Hussein's weapons of mass destruction, the heroic home-run production of steroid-laced Major League Baseball players Barry Bonds and Mark McGwire, the uncompromising principles of New York Governor Elliott Spitzer, the morality of our politicians (e.g., John Edwards, John Ensign and Larry Craig), the consistency of Bernie Madoff's investment returns (and those of other hucksters) and the clean-cut image of Tiger Woods.