Dig Deep

“It’s difficult to make predictions, especially about the future.” – Yogi Berra

Over the last week, Charlie Bilello’s piece titled “Put These Charts On Your Wall…” got quite a bit of buzz and attention. If you haven’t taken a look, I highly recommend you spend a few minutes scanning through it prior to reading the rest of this writing.

As Charlie correctly notes, “The market doesn’t have to do anything, and certainly not what you think it should do. The market doesn’t abide by any hard and fast rules; it does what it wants to do – when it wants to do it.” Yet, often times analysts and market pundits on TV will make it seem like quite the opposite. Confidently proclaiming what stocks, bonds, the Fed, etc. will do, the prophet of the moment gets attention and attention gets ratings.  The media, in an effort to hype the appearance of the latest soothsayer on the hill, will introduce their guest as “the one who called the whatever decline, or advance” as if there is a correlation between prior guesses about the future, and new ones.

Are all analysts and pundits charlatans? Or are they simply giving the people what they want? After all, no one can possibly predict the future, but that doesn’t prevent people from wanting to anchor on to some future scenario they think “will” or “should” happen. Sometimes those anchors are justified. In my hundreds of CFA and CMT presentations across the country, I always made it a point to say that while no one is good at making predictions, every action we take is a form of one. Set your alarm late at night? You are inherently making two predictions: 1) you’re going to be alive the next morning, and 2) you’re going to have a job if you are. Why set an alarm otherwise? Probabilities favor I’ll be alive and have a job tomorrow, so I go to sleep setting the clock. And I certainly hope my prediction comes true!

The problem isn’t making predictions. The problem is confusing predictions with scenarios and the probabilities attached to them. Strongly proclaiming that markets will do something in the future makes for good TV. If the extreme call ends up coming true, the prophet of the moment is praised. If the extreme call ends up not coming true, it is completely forgotten. Fortunately, or unfortunately, this is how the game is played in a world of ever shortening attention spans. 

I know this well first hand as someone who has written thousands of writings on various websites. My analysis of markets led me to a probable future outcome, but in order to be published and garner attention, the tone of those writings needed to be more forceful than the scenario I laid out. It is difficult to build a name and become known if the reader sees a lot of “maybes” and “possibles.” Readers like certainty and confidence.

Analysts and pundits are simply giving people what they want – a strong narrative to hold on to in the face of a tomorrow no one can remember. The audience wants the analyst/pundit to tell them what happens tomorrow, and the analyst/pundit gives the audience what they want. After all, it is easier to follow someone’s line of thinking than create your own. But this is not the right way to grow as an investor and member of society. Extremes in markets and in life happen in the face of an unknowable future, and taking action based on the words of the overconfident without realizing there are many possible outcomes is damaging.

It isn’t easy to ignore the seductive sound of confident forecasts. But to progress from good to great, you need to think harder, respect probabilities, and always remember that there is no correlation between intelligence and the clarity of one’s crystal ball. Dig deep.

This writing is for informational purposes only and does not constitute an offer to sell, a solicitation to buy, or a recommendation regarding any securities transaction, or as an offer to provide advisory or other services by Pension Partners, LLC in any jurisdiction in which such offer, solicitation, purchase or sale would be unlawful under the securities laws of such jurisdiction. The information contained in this writing should not be construed as financial or investment advice on any subject matter. Pension Partners, LLC expressly disclaims all liability in respect to actions taken based on any or all of the information on this writing.