Your 2023 Market Outlook

Looking for a good guide to the markets in 2023? May I suggest Isaiah Berlin’s The Hedgehog & the Fox. Written in 1953 as a meditation on Lev Tolstoy’s approach to history, especially in War & Peace (1869), it’s as good a guide to investing as you’ll find anywhere. That’s because its about you; it is about self-knowledge. Interest rates, currencies, P/E multiples, etc will always come second to awareness of who you are, what you want, what really matters to you as an investor.

Berlin draws on a fragment from an ancient Greek poet Archilochus that “the fox knows many things, but the hedgehog knows one big thing.” Berlin and many others since have used the parable to categorize people into those focused on a singular, overarching idea around which they build world-views and activities. Those are the hedgehogs. They can handle near-term setbacks and advances with ease because they are focused on the big picture. In contrast, the foxes are much more flexible, adaptable, and faster. They will change the plan if they think it makes sense to do so.

There is no doubt that in the investing arena, I am a hedgehog. I’ve committed to one big idea and do all I can to bring reality into line with it. To judge by holding periods, style drift, turnover, investor timing, etc, it appears that most market participants are foxes. Good luck to them. I wish them well. There is room for both.

The characterization is not about a particular investing style, such as value or growth. It is more about the approach to the overall enterprise. Indeed, a certain biblical boat investor who has been in the news recently is also a hedgehog. Her singular idea is diametrically opposed to mine, but she can’t be faulted for not being committed to her worldview.

So as we enter 2023, once again faced by the definingly human challenge of decision-making under conditions of uncertainty, take some time to confirm where you stand. Your investment decisions may or may not work out next year, but knowing whether you are a hedgehog or a fox will surely help you manage the experience.