We predict things all the time, we can’t help ourselves. And in the small world that constitutes our immediate bubble of experience, those predictions may have some validity. But in the big world that we inhabit they often don’t. Which of those worlds do you think more accurately represents stock market investment?
It’s difficult for us to accept that our small world experience doesn’t scale up to the big world, but it’s often true. To all intents and purposes we’re infants teetering on the edge of the volcano: to all intents and purposes we know absolutely nothing worth knowing.
Forecasting is a tricky business. So tricky, in fact, that I long ago decided that I haven’t got a clue what’s going to happen next, so I try not to worry about it.
But if you took away the ability to prognosticate about the future from most financial experts they’d actually have to go and get a proper job. There’s nothing they like better than pontificating about the future, which makes it odd that mostly they can’t even explain the past. You might almost think that they haven’t got a clue either …
It’s almost cruel to point out the failures of past forecasters, but we’ll do it anyway. Economists are quite good at this – Paul Samuelson back in 1961 stated that the success of the Soviet economy showed:
“A socialist command economy can function and even thrive”.
For a while anyway. Another economist, Joan Robinson, was so impressed by North Korea in 1964 that she predicted that:
“As the North continues to develop and the South to degenerate, sooner or later the curtain of lies must surely begin to tear”.
Or what about Joseph Cassano, who ran the giant insurer’s AIG’s financial products division. In 2007 he promised that AIG wouldn’t be:
“Losing one dollar in any of those (CDO) transactions”.
AIG went bust the following year and had to be bailed out.