Everybody’s a Fortune Teller

crystalballIt’s human nature to fall in love with investment prediction. People play paper-rock-scissors from a young age because people either believe, or want to believe, that an advantage can be had by recognizing non-random behavioral patterns of an opponent. There are even leagues and tournaments dedicated entirely to paper-rock-scissors where every participant seeks to out-predict their opponents.

Predictive forecasting is a behavioral trait that separates humans from other species. Indeed, pattern recognition has led to some of history’s greatest inventions and discoveries. As a species, we have an aversion to ambiguity and crave control. As a result, it’s simply in our nature as people to look for patterns, not only in paper-rock-scissors, but in all aspects of life.

Investing’s Double-Standard

People make predictions about the future based on pattern recognition. If we are correct, we celebrate this success as a result of our skill. If we are incorrect, we attribute such mistakes to bad fortune. A good investment prediction is the result of intelligence and preparation whereas a bad investment prediction is the fault of extraneous or unforeseen events beyond our control, the basis of the oft-uttered, yet completely arrogant proclamation: “Nobody could have predicted this,…”

No Shortage of Hot Air

However, even the highly educated “experts” on TV and radio who are paid for their perceived expertise and insights are no better at predicting the future than you, me, or anybody else. Renowned behavioral psychologist Phillip Tetlock spent nearly 20 years examining the forecasting ability of experts and wrote a book titled “Expert Political Judgment” on the findings.  His study of 284 people who made a living “commenting or offering advice on political and economic trends” may be the most expansive study of expert predictions ever conducted. These experts made predictions about the future on questions like would George Bush be re-elected, would the dot-com bubble burst, and whether GDP growth would exceed a certain level. By the end of the expansive study, Tetlock reviewed 82,361 forecasts.

People, Simply, Are Bad Forecasters

The results are fascinating. They prove that we are better off relying on random guesses for forecasts of the future than on economic or political experts who write books, appear on TV and talk radio, and get paid to provide predictions. Tetlock says, “Even the most astute observers will fail to outperform random prediction generators – the functional equivalent of dart-throwing chimps.” Notably, Tetlock’s findings are no different than more than a hundred other studies that have compared expert predictions to simple statistical formulas. Humans, expert or otherwise, are just bad at making predictions.

But the Narcissism Party Rolls On

However, this doesn’t stop television talking heads or “expert” investment professionals from placing themselves on the highest pedestal possible, gazing into their crystal balls, and telling people what will happen to various markets 3, 6, or 12 months from now. While it is generally understood that nobody, expert or otherwise, can accurately predict the future, such people and institutions still, incredulously, proclaim to people what they should be doing with their money.

So Where Does theSTREETCYNIC Come In?

I believe this practice of investment fortune telling to be incredibly dishonest and disingenuous. The truth is, while people will tout their correct predictions as proof of their own prescience, their incorrect predictions are often kept quiet and swept underneath the rug, conveniently forgotten or explained away.

theSTREETCYNIC is an attempt to hold these people and institutions accountable for what they tell people to do with their hard-earned money. I scour the web and other media looking for either bullish or bearish investment predictions/sentiments to cite and publish to maintain that organized, ongoing digital record so what “experts” say and predict never becomes forgotten.

I have three primary goals:

  • Act as an archive of chronicled investment predictions to better hold people accountable for what they say.
  • Be an “edu-taining” reference for people to gauge current sentiment on different markets.
  • For those that will worship “expert” investment predictions against all statistics and rationality, to be a one-stop source for them to seek out those actionable predictions and form their own investment decisions accordingly.

I get it. Picking trendy investments and forecasting market swings satisfies our behavioral biases. People want to believe that we can seek out patterns and use these patterns to predict the future, because it puts us in control which is far more attractive than admitting that we actually have none.

But real-life investing simply doesn’t work that way.