By Bob Brooks
April 14, 2014
Predictions, predictions, predictions – everyone on Wall Street has them. Before you get overly anxious or overly optimistic, there are a few things to consider about predictions.
No one really knows
The reality is that no one really knows what is in store for the future. Keep in mind, a good prediction is not a good prediction unless it is delivered confidently and as a matter of fact.
No one will remember
It is a low risk prospect to be a predictor of prosperity or gloom and doom. If you happen to roll the dice and get lucky, then you are all of the sudden a prophet. If not, no one remembers. It is sort of a great gig.
Don't confuse luck with the ability to see the future
If one of those Prophets of Profits does happen to get it right, then he/she will actually start believing that they are a prophet. No, it was more than likely luck that made that forecast rather than skill.
Rarely, will someone get lucky twice
There is a reason that a person is rarely lucky twice with forecasting. After they get it correct (lucky) the one time, then they form a bias, get over confident, and see everything through the lens of their forecast. This diminishes the effect of their decision making. I have seen this numerous times.
The number of their predictions increases as they continue to get it wrong
If you predict something long enough, you eventually get it right. In 2008, ex-mutual fund manager Bill Miller thought that financial stocks were the place to be. Unfortunately, it was at the wrong time. He held onto those stocks all of the way to the bottom of the financial meltdown in 2008, and lost a high percentage of money. Just the other day, he said on CNBC "that the conditions for a bad market just don't exist.".....much like that in 2008 I guess.
They are selling you something you need
Marc Faber was on CNBC the other day predicting a stock market crash worse than 1987. Mr. Faber is editor and publisher of the Gloom and Doom Report. No, I can't make this stuff up. Typically these guys will make these gloom and doom forecasts because they are selling the newsletter that is going to fix the problem.
There are a few great forecasters who are doing so because of knowledge and skill. However, most of them have an agenda.