Welcome to 2010.

Every year and more so when we reach the start of a new decade we all see lots of predictions concerning what is to come. Maybe it is entertaining or maybe it is more of a trap. I know that predictions are rarely accurate or useful. History shows predicting the future is fraught with error.

Planning for the future is a different matter. It is well worth the time and mental gymnastics to ponder the future, to identify possible scenarios and then create a plan.

It needs to be noted that the value is in the exercise of planning and not in the result produced, the plan.

Plans are nothing; planning is everything.
Dwight D. Eisenhower
Supreme Commander of the Allied forces
34th US President

Scenario planning is a tool used by the military and in the business community when they consider the future. War games or business simulations can be examples of scenario planning exercises. The following is from the Wikipedia page for scenario planning:

“Scenarios planning starts by dividing our knowledge into two broad domains: (1) things we believe we know something about and (2) elements we consider uncertain or unknowable. The first component – trends – casts the past forward, recognizing that our world possesses considerable momentum and continuity. For example, we can safely make assumptions about demographic shifts and, perhaps, substitution effects for certain new technologies. The second component – true uncertainties – involve [indeterminable factors] such as future interest rates, outcomes of political elections, rates of innovation, fads and fashions in markets, and so on. The art of scenario planning lies in blending the known and the unknown into a limited number of internally consistent views of the future that span a very wide range of possibilities.”

Real estate investors spend a lot of time discussing house prices, interest rate movements, what lenders will require in terms of loan qualifications and pending legislative actions. More important than deciding what will happen is being prepared for a range of possible changes and how various changes will intermix. As long term investors we have to accept we can not predict the future as much as we can respond to it. We need to remain flexible while not becoming paralyzed by Fear, Uncertainty, and Doubt (F.U.D.). F.U.D. will cause inaction and the market hates inaction. It is said that “fortune favors the bold”. It is hard to have success if you are paralyzed by F.U.D.

Playing the game Cashflow is a way for new real estate investors to gain experience while removing many of the practical risks. Similar to how a gymnast learns a balance beam routine while the beam is on the floor. Take away the obvious risk so the student can gain confidence without risk of serious harm

It is 01 January 2010. If you have not already done so take some time over the next few days or the first week of January and develop a plan for your investment activities this years. Think beyond the normal predictions that will appear in the Sunday papers and remember that you are investing long term. What will happen over the next decade rather than the next 12 month. Consider just how badly people predicted over the last decade and allow for the truly unknown, the indeterminable factors. Create a plan that has focus and which allows flexibility so you can adjust to market forces that you cannot plan for in advance.

Luck is what happens when preparation meets opportunity.
Seneca
Roman dramatist, philosopher, & politician (5 BC - 65 AD)

If you have views or comments, please share. No one of us is as smart as all of us. Contribute to the conversation

-John Corey

Tags: strategy