The National Basketball Association recently crowned their 2011-2012 champions. When the playoffs began, most basketball writers and analysts favored the San Antonio Spurs to win it all. The Spurs tied the Chicago Bulls for the best overall record in the league during the regular season at 50-16. They had three winning streaks of 10 games or more. The last streak culminated into 20 straight wins, which included the last 10 games of the regular season and the first 10 games of the playoffs. The sports pundits couldn’t be happier. Their prediction of the Spurs being the 2012 champions seemed to be coming to fruition. But the unexpected happened. The Spurs lost the next four games to the Oklahoma City Thunder and were eliminated from the playoffs in the Western Conference Finals. The Spurs lost as many times in seven days as they had in the previous 12 weeks. How could this be? The same writers and analysts were now scrambling to explain how a team that had won 20 straight games was now out of the playoffs. Many reasons for the Spurs descent were debated. Did their age catch up with them? Were they outcoached? One writer even mentioned how years ending in an even number had not been kind to the Spurs. That San Antonio’s four championships came during the odd numbered calendar years of 1999, 2003, 2005 and 2007, so how could we have expected them to win in 2012?
With San Antonio out, Oklahoma City was now THE team to beat. The only thing standing in the way of the Thunder winning the title was the Miami Heat. All went according to plan in Game 1 of the Finals as Oklahoma City won 105-94. Many writers and analysts were declaring the series over, even though Miami had arguably the best player in basketball on their team. That didn’t matter. Oklahoma City was simply the better “team.” But the unexpected happened. Miami won Game 2 on the road in OKC and went on to win the next three games at home to win the series 4 games to 1. How did this happen? Again, the writers and analysts were left scrambling for answers. My favorite explanation on how Miami won…they were the better “team”. One week earlier the same writers and analysts were declaring Oklahoma City the better “team”.
How does this relate to investing? It is hard to predict the future.
San Antonio was that proverbial can’t miss investment. The one you hear about from financial analysts, brokers, or money managers. And when that doesn’t work out, the same so-called experts recommend the next can’t miss investment (Oklahoma City), only to find out we should have owned Miami in our portfolio the entire time.
Now I’m sure a few writers or analysts picked the Miami Heat to win. Likewise, some brokers, money managers, and the like are occasionally able to pick winning investments. The problem is no one has been able to do so, consistently, for a long period of time.
Investors should not worry about trying to predict the future. It is very hard to do. Instead, investors should focus on things they can control like the amount of risk they take and how much it costs to invest.