Map Versus Terrain

Last week, Mike wrote an outstanding piece, making the brilliant use of a simple metaphor:

“Floating in outer space and looking down on earth, one would see a perfectly smooth, spherical ball. But zoom in and you’ll find valleys drilled thousands of feet into the surface, and mountains shooting miles into the sky. There is a world of difference between glancing at a map and traversing the terrain.

Likewise, looking at the growth of a long-term investment and focusing on the destination provides little insight into the journey one experienced to get there.”

Thats a smart perspective and a great comparison. Consider the smoothed returns of the market over the past 20 years — that is your map:

 

Map

 

However, that smooth line is a 30,000 foot view of the market over years and decades. Life and markets are each lived day to day.

At that level, the topography looks a lot different: here is your more granular terrain view:

Terrain

Source: Irrelevant Investor

 

Quoting Adam Smith, Mike adds “Statistics provided rather bloodless answers.”

Go read the entire piece; its well worth your time…

 

Source:
The Map Versus The Terrain
by Michael Batnick
Irrelevant Investor, May 11, 2017  
theirrelevantinvestor.com/2017/05/11/the-map-versus-the-terrain/

Read this next.

Posted Under