Prepare for the worst; hope for the best…

Gold, stocks, oil…little movement yesterday.

Michelle Bachman decided to drop out of the race for the White House. Pundits, pollsters, and gamblers predict that Romney will be the Republican’s man.

Iran told the US to get out of the Strait of Hormuz. “And don’t come back,” it added. Apparently, investors are betting that the threat wasn’t serious.

But that’s the problem with predictions and forecasts, too. You never know which ones will come to pass. For all we know, Romney could be charged with pedophilia in New Hampshire tomorrow…and all Hell could break loose in the Mideast.

“Prepare for the worst; hope for the best,” was always good advice. And here at The Daily Reckoning it is the foundation of our investment approach. We never know what will happen. So, what we want are investments that don’t depend on knowing. We depend on ignorance, in other words, and the kindness of strangers. We want investments that are already so cheap unexpected setbacks and unforeseen disasters won’t hurt them.

If you buy a share in a company because you think the price will go up, you are betting that you can see into the future. A bad bet, in our opinion. The unknown unknowns are likely to work against you. Better to buy a share that you want to own – whether the price goes up or not.

Likewise, the time to buy an oil stock is not when you expect war with Iran. Better to buy an oil stock when no one expects war. Then, the unexpected can only help you.