Stock Market Non-Predictions, Over-Predictions, and Other Tricks of the Trade
“Predictions are hard, especially about the future.”
–Yogi Berra
Apparently, there are two ways to be beat a polygraph (lie detector) test: 1) be a truly “cool cucumber,” who is absolutely non-reactive to every conceivable question; or 2) wildly overreact to every question, so that there’s no discernible pattern amongst all the gyrations.
With the stock market swooning (and investors’ anxiety rising) in early 2014, there’s been a coincident uptick in the number of so-called “experts” stepping up to forecast what’s going to happen next — and employing much of the same gimmickry.
I put these “non-predictions” into two categories, which parallel the strategies for trying to defeat a lie detector test.
One. “Over-Prediction.”
Also known as “throw everything against the wall and see what sticks,” this tactic involves making so many predictions, about so many things — not a few of which are contradictory or mutually exclusive — that by sheer statistical probability eventually something will turn out to be right.
Stock market motor-mouth Jim Cramer falls into this category.
So, too, do Wall Street titans like Goldman Sachs, who practice a more sophisticated version.
Namely, their legion of analysts seem to make every possible market call under the sun, assuring that at least someone at the company will be right about something at any given moment.
Two. “Under-Prediction.”
Under-prediction involves the art of seeming to say something . . . but not (minus the quantitative data, politicians practice this art as well).
Perhaps the best known example of this is financier JP Morgan’s pronouncement more than a century ago that “stocks will fluctuate.”
Call that the tautological or self-evident type of non-prediction.
That’s in contrast to two other variations: a) the very long-range forecast; and b) the “obfuscatory” prediction.
Cue Keynes
Pick a long-enough time frame, and you’re sure to be right . . . eventually.
It’s also the case that people will have long forgotten if you’re not.
It’s hard to top economist John Maynard Keynes’ “in the long run . . . we’re all dead.”
But, predicting that the Dow Jones will reach 30,000, or 50,000, or some other lofty number (it’s just under 16,000 now) at some distant date decades from now comes close.
“What the &$%# Did They Say?!?”
If you don’t know what the future holds, but still want people to think you have some insight, the other strategy is to say something so vague or complicated that no one knows what the hell you’re talking about.
So, witness this gobble-de-gook from blogger Barry Ritholtz:
“The next level analysis is [determining] whether . . . good news is bad (meaning less accommodation) or good (economic improvement); or conversely, whether bad news is good (meaning more accommodation) or bad (economic deterioration).”
—Barry Ritholtz, “Predicting Jobs Data is Hard ” and Useless, Too”; The Big Picture (May 3, 2013)
Or this, from outgoing Pimco #2, Mohamed El-Erian:
“Navigating [today’s unpredictable markets] requires investors to rely less on historical short cuts and, instead, spend more time decomposing asset classes into their constituent risk factors. Moreover, they need to internalize a much broader set of correlations, pursue a more global opportunity set, and mitigate risk not only by diversifying but also by using active tail hedging aimed at protecting against the bad extremes of possible outcomes.”
—Mohamed El-Erian, “Investing in a Fat Tail World”; The Wall Street Journal (1/9/2012)
At least some people will think that they’re simply not smart enough to understand what you just said.
Others will confuse opacity with brilliance, and ascribe oracle-like status to the practitioner.
The undisputed master of this strategy?
Former Fed Reserve Chairman Alan Greenspan, who wasn’t revealed to be a clothes-less King until well after his 20-year tenure at the Federal Reserve ended.
