What is the difference between expectations and predictions?

By bmvtyea | Bernie-flow | 5 May 2021


 

Within the investment crypto world it is quite common to see people making predictions. Questions such as: "When will the next crisis happen?", "Will the crypto market go up more?" and "Is it bearish?" appear all the time. Not that these questions are unimportant, but it is practically impossible to identify when or to what extent these events will occur.

 

Even so, there is a constant bombardment of information, on all sides, with different investment predictions. The question here is: how do we know whether or not we can trust these predictions?

 

To answer this question better, we first need to differentiate between the concepts of expectation and prediction. Although they have similarities and appear to be the same, they have a big difference.

 

A person may have the idea that some investments will not perform as well, but there is no way of knowing which ones will be. It is possible to expect a financial crisis - or for the crypto market to drop by more than 40% - but it is not possible to predict when exactly.

 

In summary, an expectation is the application of knowledge of how things happened in the past in relation to the likelihood of repeating themselves in the future. A prediction occurs when it is said that something will happen at a specific point in time.

 

The fact is that all investors would like to be able to predict what will happen in the coming years. However, this is impossible, as it is very difficult to take into account 100% of the thousands of factors that impact the result.

 

As much as the expectation does not give the exact moment when something can happen, it can help in preparing against the surprise factor when the problem really arrives. This is particularly important when dealing with investments, as it leads the investor to make decisions considering a margin of error and leaves him prepared for any frustrations.

 

In practice, the difference between saying that a crisis will happen in the second half of 2021 and saying that a crisis is expected to happen over the decade is huge. If the investor maintains an expectation, he will not be surprised when it comes to fruition - and he will be prepared. However, if he does not keep it, he will hardly have prepared his investment portfolio with diversification. Therefore, he may face problems.

 

At this point, it is understood that it is necessary to be careful when listening to predictions, not least because no one has a crystal ball to guess the future. On the other hand, having a general idea of ​​what is expected helps the investor to make better decisions.

 

Some investors, with their own or third party forecasts, believe that they will always be able to invest in the best moments. But this is more of an illusion than anything else.

 

It is very difficult to set the right time to buy or sell investments, the so-called market timing. Therefore, the long-term investor must be patient, above any prediction or expectation.

 

Investing in assets that have a safety margin and smart diversification can help investors to create a better strategy in the long run, preparing them for most adverse scenarios.

 

An important skill to be acquired by long-term investors is to celebrate when the price of the companies in which they invest falls - the famous promotion. See that we are talking about price, not value.

 

This is because the crypto market opens an opportunity for the investor to acquire an asset whose fundamentals are improving (market share, etc.) at lower prices. Obviously, the investor must be careful to check that the fundamentals are not deteriorating. But this is not always easy. We have a natural instinct to always buy at the right time, hoping, since the purchase, that our assets will appreciate. However, when we make monthly contributions, we are accumulating equity and, therefore, the cheaper we acquire our assets, the better our returns will be.

 

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bmvtyea
bmvtyea

Young Brazilian newbie in Crypto


Bernie-flow
Bernie-flow

Trying to inspire those who doesn't have some financial conditions, such as myself, to growth a nice portfolio.

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