PERFORMANCE ANNOUNCEMENT

As Of: June 24, 2004

THE FUTURE

Your investment fortune rests on your ability to predict.

     

It is time to shatter some myths, reach out for the truth, and find a better way to do things.

MYTH: Nobody can foretell the future, and anyone who pretends to do so is a sham.

REALITY: While it is true many con artists prey upon people's desire to know the future, the premise that nobody can foretell the future is fundamentally wrong. If prediction is hopeless, why do we have weathermen and city planners, election projections and financial planners? On the most basic level, if the caveman couldn't predict where to find food and water, he would die. If the farmer cannot predict the seasons of the year and know when to plant his crops, he will fail. If the engineer cannot predict stresses and loads and material failure rates, he can't build bridges and airplanes. The need to predict permeates virtually every facet of human life. The ability to predict is a defining attribute of higher life forms. Being conscious of a future state, and having the reasoning ability which allows prediction, is the essence of free will that separates man from a plant whose seeds are carried randomly on the wind.

      If prediction is so essential to human existence, why isn't there a college course titled Prediction 101? I do not know the answer, but it seems to me there is a gap in most people's education.

MYTH: Since actions have consequences, the future can be foretold if we simply extrapolate a cause-and-effect chain of events.

REALITY: We do not live in a simple linear world. Weathermen see rain moving east across the Great Lakes region and predict that it will rain in New England. Sometimes the rain storms make it to New England, and sometimes they don't. We live in a world of dynamic complex systems. By definition, complex systems are not linear; and the same inputs do not always produce the same outcomes. Yes, successful prediction is possible; but it is not simple. Any successful method of prediction has to take complexity into account. Prediction is thus a statistical methodology that has to consider a failure rate. And knowledge of a failure rate goes hand in hand with a need for risk management.

      While we wait for interest rates to go up and geopolitical events to unfold in Iraq, it is reasonable to make predictions and to act responsibly on those predictions. One of the easiest predictions is that, because human emotion frequently exaggerates the true state of events, the status quo is the most likely of possible outcomes. A gradual rise in interest rates is not likely to be a traumatic event for the economy, nor is the world order likely to collapse overnight due to terrorism.