Anticipatory Thinking and becoming a better investor

 

A good analyst is supposed to be a good predictor. Successful forecasting matters, yet many are not very good at it. Being a good forecasting for investment success is a high bar, and unfortunately, very little time is spent in business schools teaching how to be a better forecaster. MBA students are taught about to find an expected return and study finance models, but little focus is spent on how to make better decisions. There may be course on decision science, but here the focus is on how to use empirical tools to make forecasts and not on how to make decisions in an uncertain world. There has been some very good work in this area, but not with respect to finance. Finance has spent a lot of time and effect on measure cognitive errors but not a lot of time on how to make better decisions other than to say that you should avoid cognitive errors and biases. Prediction is not the same as decision-making.

An interesting twist has been to focus not on prediction but anticipatory thinking. A prediction states that a given event will occur by a certain date with a probability of "X". Anticipatory thinking tries to generate the events that will then have to be predicted. 

Anticipatory thinking is an important macrocognitive function necessary for successful investing. Simply put, anticipatory thinking is the ability to prepare for specific problems and opportunities. In the current environment where we have just had the failure of SVB, anticipatory thinking works through the preparation for what may occur. What may I expect? How should I deal with different scenarios or events? If this happens, what will I need to do? What will be my response given an event? Anticipatory thinking is functional and not focused on handicapping what will happen. Recognition of events is a precursor. Anticipation of hazard is different from predicting hazards.  

Some forms of anticipatory thinking: pattern matching, trajectory tracking, and conditional analysis. Pattern matching looks for similarities from past studies that may enlighten thinking. The classic analysis of comparing current events with past historical events is a simple form of pattern matching. Trajectory tracking looks at the trend or trajectory of events and then tries to get ahead of the curve. If I am tracking a ball when playing catch, I must try place myself in a position where I can make the catch. I am getting ahead of the curve. Conditional thinking is what we often engage with as part of our prediction process. If I don't do "X", there will be bad outcomes. Conditional on these events, certain scenarios are more likely regardless of whether I am making a formal prediction. 

Anticipatory thinking is not the same as using models or data science to help formalize possibilities. It is not a data problem. It is a not a matter of reducing biases. It is not just increasing vigilance. Rather it is looking at possibilities and looking at scenarios. It is work necessary to make better decisions and predictions. Think less about prediction and more about anticipation.