Over the past week I’ve noticed a surge of geopolitical strategists appearing out of the woodwork. That’s understandable since moments of conflict naturally invite strong opinions about how events will unfold.

What strikes me, however, is how confidently many predictions are made and how unlikely we are to compare predictions to observed results. Before performance measurement became widespread, people assumed active investment managers delivered great results. Today, we know they usually underperform against indices, and their forecasts are appropriately discounted. Will we hold geopolitical prognosticators to the same standard?

Rather than adding another prediction to the pile, I thought it would be more useful to explain how we think about preparing for unpredictable events. Our goal isn’t to forecast the next crisis, but to ensure that our clients’ plans are resilient enough to endure whatever the short term brings while remaining positioned to benefit from the adaptive systems that drive long-term prosperity.

The letter that follows was originally written with our clients in mind, but I think the ideas can benefit everyone.

The recent escalation of conflict with Iran has understandably raised questions about what it might mean for markets and the global economy. During times like these, I think it is important for us to reach out to clients, not to make predictions, but to illustrate how we think about the world.

Growing up, I believed the more information I consumed, the better my predictions would become. That obsession only accelerated after 2008 as I began reading economics papers and following financial news closely. This continued until one day in college, one of the greatest intellectual blessings I’ve had suddenly clicked in my brain: very few of the predictions I read ever came true. I realized that if professional investment managers, who have real money at risk, frequently struggle to outperform the market consensus, what hope do opinion writers have?

Over time, I came to view predictions and opinion writers differently. Many exist primarily to capture our attention, and none have a fiduciary duty to improve the quality of our thinking. What is vastly more interesting is having humility about the range of possibilities, making sure we are well capitalized to survive the randomness of short-term events, and understanding the systems in place that allow us to adapt over the long-term.

The Short Term: Capitalization

Your investment portfolio: Reading history may not help us predict what will happen, but it can inform what is possible. A few years ago, I coined a phrase among friends: “Surprised, but not surprised.”

It’s similar to drawing a card in a deck. You’re never shocked that a Queen of Diamonds exists in the deck, but you may not expect it at that particular moment. Wars, recessions, and crises are always in the deck. We simply cannot predict when they will be drawn.

That is precisely why your financial plan is built to endure them. For our retired clients, we maintain at least seven years of annual withdrawals on the bond side of the portfolio alone. This is before considering spending adjustments, using other assets, or touching the stock portion of the portfolio. And if markets decline in a meaningful way, we are prepared to rebalance and take advantage of Roth Conversion and tax loss harvesting according to a predetermined plan.

In other words, your plan is built so that short-term events and even severe ones, do not force long-term decisions.

The Medium & Long Term: Systems That Adapt

My confidence in our clients’ ability to weather events is reinforced by the adaptive systems we operate within, particularly the American free-market economy and its political institutions. I believe the best systems allow the free flow of information so decision makers (people, companies, and governments) can do what they perceive to be in their best interest.

Free Markets, Energy, and Adjustment: When events disrupt global energy markets, the important questions are not predictions but incentives. Prices never exist in a vacuum. High prices encourage innovation, new production, substitution, and efficiency. Economist Thomas Sowell summarized this dynamic well:

“Many false predictions over the past century that we were ‘running out’ of natural resources were based on confusing the economically available supply at current prices with the ultimate physical supply in the earth.”
— Thomas Sowell, Basic Economics

Markets respond to incentives. Higher prices encourage new supply to capture excess profits, new technologies, and new solutions. The key question is rarely whether adjustment will occur, but how quickly markets are allowed to respond.

Government, Institutions, and Decision Making: Another underappreciated strength of the United States is the structure of our political system. Our multi-party system, combined with independent institutions and free debate, creates an environment where competing ideas can surface, challenge each other, and eventually produce better decisions.

Having served as an Army Reserve officer under both Democratic and Republican administrations, I’ve seen firsthand how much diversity of thought exists within the system. Around the world we can see how other countries burden themselves by restricting the flow of ideas and dissent. Recently, Xi Jinping, China’s Communist Party leader, placed the leader of China’s military under arrest and has begun a purge of his associates. Xi has said they will prioritize loyalty to the party in their military leaders. It’s hard to imagine how much talent and information are lost in systems where loyalty to a party, rather than loyalty to a nation, is prized over effective decision-making.

By contrast, the relative openness of American institutions and the economy continues to attract talented people from across the world. This is one of the quiet advantages behind our country’s long-term resilience.

Final Thoughts

The future is vast and unpredictable. In the deck of cards that is life and world events, there are certainly negative cards, but there are also many positive ones. Our role is not to predict which card will be drawn next, but to ensure your financial plan is strong enough to endure whatever difficult card appears and is positioned to benefit as the world adapts and improves.

History reminds us that markets have experienced wars, oil embargoes, terrorist attacks, financial crises, and pandemics. Each felt enormously uncertain at the time. Yet over the long arc of history, markets have continued to grow alongside human innovation, productivity, and adaptation. The lesson is not that disruptions don’t matter, but that patient capital and resilient systems have historically proven far more powerful than any single event.

Events like today’s conflict are reminders that difficult cards will occasionally appear. When they do, we may be surprised when they are drawn, but we should never be surprised that they exist in the deck.