Predicting the future is difficult, and despite mountains of evidence supporting this notion, in business and finance we continue to devote considerable effort to the pursuit. Why is this?
In a world that is filled with unknowns, we seek certainty in order to feel more confident about our decisions. While planning and goal setting are essential, we need to be aware that any long-term forecast is likely to be wrong, and the reasons for this forecasting error may very well be unknown. While this can be unnerving as an investor, I think this awareness can lead to better outcomes. While hearing a 5-year earnings forecast delivered with confidence can be reassuring (typically supported by a polished slide deck and detailed spreadsheet), it can lead to tunnel vision and an underestimation of risk. If a good investment result is predicated on a narrow range of outcomes, and the assumptions underpinning these outcomes are held with strong conviction (false confidence), you are probably taking more risk than you think. A better approach could be to say, “I don’t know, but this is how we are prepared to adapt our strategy depending on what the future brings”. While this requires a degree of humility, it leads to better decision making and an increased likelihood of success.
While having medium and long-term goals are a critical element of any business plan, at SeaFort we also understand that there are multiple paths to success, and plans are rarely linear. How does this work in practice? First of all, we partner with top-notch management teams that have the experience and awareness to adapt to a changing landscape, and we empower them to do so. As a financial sponsor we view our role as one of support. While we challenge our management teams and hold them accountable, we know that business can be tough, and even the best laid plans go awry. We are experienced, engaged and informed, and committed to our shared success.
As the old saying goes, you can’t control the wind, but you can adjust your sails.
About The Author
Stephen co-founded SeaFort in 2012. He was previously Director of Research at Clarke Inc., a TSX-listed investment company and prior to that worked in commercial banking for CIBC. Stephen holds a BComm from Dalhousie University, an MBA from Dalhousie University, and is a CFA Charterholder. Stephen also serves on the board of directors of the Canadian Venture Capital & Private Equity Association (CVCA).