Is Hindsight 20-20?

Understanding Factors

The problem is, the phrase is dead wrong. Hindsight is not 20-20. Not even close. Our view of the past, in fact, is hardly clearer than our view of the future. While we know more about a past event than a future one, our understanding of the factors that shaped it is severely limited. Not only that, because we think we see what happened clearly, hindsight being 20-20 and all, we often aren't open to knowing more.

We should be careful to get out of an experience only the wisdom that is in it and stop there, as Mark Twain once said, "lest we be like the cat that sits down on a hot stove-lid. She will never sit down on a hot stove-lid again. And that is well; but also she will never sit down on a cold one anymore." The cat's hindsight, in other words, distorts her view.

"The past should be our teacher, not our master." - Ed Catmull, Creativity Inc.

Market Activity and Investor Behavior

I love this quote. The idea of hindsight being 20-20 is often a universally accepted rule but when you consider what Catmull says, I tend to agree with him that in most cases we have no greater understanding of the cause and effect of events in time and therefore have very little ability to use that hindsight to benefit our future. This concept is particularly interesting when studying market activity and investor behaviour.

2020 was a year that will not soon be forgotten by most investors. What a rollercoaster of events and emotions. Now ask yourself, when the markets were dropping about 30% in March last year, what was your initial thought? How did you feel? If you're old enough to have been investing through the financial crisis did it bring back painful memories? The financial crisis left a scar on many people. The question is, did those scars become your teacher or your master?

The Behavior of Avoidance

For many, including myself, the experience of the financial crisis gave me focus and a foundation to rely on so that I could guide clients through the volatility of the pandemic. But for many, the fear of 'here we go again' led to paralysis or even worse – avoidance. This behaviour wasn't just limited to individual investors. There was a noticeable trend among many portfolio managers as well whose decisions last year were impacted by the past markets and the fear of going through another long and difficult market led some to make poor investment decisions.

Unfortunately for those caught up in the fear, they missed out on some incredible investment opportunities as we now know. So did the hindsight of knowing what caused the financial crisis offer any sort of benefit during the pandemic market in 2020? Not at all since the cause of the market volatility was completely different and completely unexpected. Will it help protect you when the next banking crisis happens? Probably not because the exact details are once again unlikely to repeat themselves exactly.

Matching Investment Time Horizon and Cash Flow Needs

However, there were a number of lessons that should have been learned including matching your investment time horizon and your cash flow needs. Investors should have learned that often the best days to be invested come right after the worst and those who try to time the market might get lucky once in a while but in the long run are more likely to miss out.

So I'll ask the questions again, when the market dropped in March of last year how did you feel? More importantly how did you react? What decisions did you make in your investment portfolio? If fear got the best of you then I would suggest that hindsight became your master. But, if you saw the volatility we experienced last year for what it ultimately became as an opportunity, then hindsight was your teacher and you were likely rewarded for it. More importantly for your future, what will the hindsight of 2020 teach you going forward about investing and life?

-Grant White, CIM, CFP

Grant White is a Portfolio Manager/Investment Advisor at Endeavour Wealth Management with iA Private Wealth Inc, an award-winning office as recognized by the Carson Group. Together with his partners he provides comprehensive wealth management planning for business owners, professionals and individual families.

This information has been prepared by Grant White who is a Portfolio Manager for iA Private Wealth Inc. and does not necessarily reflect the opinion of iA Private Wealth. The information contained in this newsletter comes from sources we believe reliable, but we cannot guarantee its accuracy or reliability. The opinions expressed are based on an analysis and interpretation dating from the date of publication and are subject to change without notice. Furthermore, they do not constitute an offer or solicitation to buy or sell any of the securities mentioned. The information contained herein may not apply to all types of investors. The Portfolio Manager can open accounts only in the provinces in which they are registered.