You don’t have to look far to find someone proclaiming what will happen next. You see it in sports, politics, and especially the markets.
Someone always knows the outcome before it happens. If the person sounds smart and confident enough, some people listen. And some spend good money for the information, so they can risk even more money for the hope of great results.
To get people to listen these days, the foresight leans toward Boom or Doom, like the end of the world, because nobody listens to mundane predictions – probably due to centuries of being let down. So they go big or go home!
The result is a lot of big, bold predictions in a world where big, bold things just don’t happen very often.
For instance, every year some nutball announces the next big stock market crash is imminent. This is despite the fact that the stock market doesn’t have a great track record of crashing very often – much less annually. For some reason, a few people believe the nutball anyway.
The pushback to this is that you can’t predict the future, so don’t even try. The dart-throwing chimp, random chance, will beat you every time. Some people believe this to a fault. This, of course, is part of the problem.
People are more comfortable with absolutes then probabilities. Except, your decisions are better if you’re more comfortable with the latter, which is explained in a new book called Superforecasting: The Art and Science of Prediction. I haven’t read it yet but plan to. That said, a lot of great info has been released along with it. I point out several pieces in the links below.
- Why an Open Mind Is Key to Making Better Predictions (Podcast) – Knowledge@Wharton
- Edge Master Class 2015: A Short Course in Superforecasting (Video) – Class 1, Class 2, Class 3, Class 4, Class 5
- Sharpening Your Forecasting Skills: Foresight Is a Measurable Skill That You Can Cultivate (PDF) – M. Mauboussin
- 5 Ways to See the Financial Future – J. Zweig
- How Google Makes Investing Worse – ThinkAdvisor
- Is Your Financial Adviser Making Money Off Your Bad Investments? – NY Times
- Anytime is the Right Time to Have International Exposure in Your Portfolio – Vanguard Blog
- Triumph of the Absurd and Useless – M. Housel