My partner Barry likes to take forecasts people make about events happening within a certain timeframe and throw them on his Google Calendar for shortly after the end-date of the prediction. Then he revisits them to see how things played out. The purpose of this exercise, he says, is not to shame them but as a reminder of the folly of it all. (On a side note, you’re all lucky that I’m here to act as a governor, otherwise the bomb-throwing would be relentless.)
Barry made some predictions that happened to have come true during different moments of his career. People remember them – the housing crisis, the stock market crash, the bottom call within a thousand points, etc. He’s made a few predictions that haven’t panned out too. People don’t seem to care.
The first thing Barry will tell anyone about this stuff is that he doesn’t think he can make these big calls reliably, nor does he think anyone else can. It’s a central theme of his oeuvre and one of the most important lessons I’ve learned from my time working with him. Many other professionals in our business would still be humping their 2008 calls to this day, if they’d made them. Ritholtz went the other way – after nailing the crisis, he turned around and trashed the entire conceit of making market calls in the first place. Hard not to respect that. Imagine the temptation of having a million monthly readers awaiting your next prediction with baited breath…most people I’ve met in this business would have had the hedge fund memorandums running night and day at Kinkos.
Fortunately, our investment process doesn’t rely on his crystal ball. As a matter of fact, the most important feature of our portfolio strategy is durability. This is because of how emphatic we are that we can’t know the future, and, as such, must be prepared for nearly anything.
Today at Slate, there’s a really good piece about why predictions are so impossible to track and grade, even if they do pan out – because oftentimes the prognosticator has said so many other things, and so vaguely, that you almost can’t ever give them a V for Victory.
Consider the case of Michael Moore’s Trump prediction, and everything else he said after making it:
The reports of Moore’s successful prognostication weren’t entirely wrong. In July 2016, Moore published a short essay in which he said a Trump victory was certain. But what the laudatory stories didn’t mention was that a Trump win was not Moore’s only prediction. In August—when Trump’s campaign appeared to be collapsing—Moore wrote that Trump was “self-sabotaging” because he was terrified of losing and he didn’t actually want to win. Trump would drop out of the race long before the election, he foretold.
And on Oct. 9, when the Clinton campaign was riding high, Moore tweeted this: “Some note it was my post in July, the 5 reasons Trump could win, that lit a fire under millions 2 take this seriously & get busy. Ur welcome.”
Trump wins, Trump drops out, Clinton wins: No matter what happened on Nov. 8, Moore could claim he saw it coming.
So basically Moore had it right. But he also had a variety of outs and hedges all over the place just by virtue of having all of his comments recorded by the media every week.
Now imagine how this works in the financial media:
I foresee volatility coming but it will be a buying opportunity.
I could have made that statement at any time over the last 100 years and it would have been factually correct. There is always volatility coming and every single bout of it has resulted in a buying opportunity, since the beginning of time up until this very month. Note, I don’t get into degrees of volatility or any sort of of timeframes. Not doing so allows me the versatility to claim victory on part of that statement or all of it at any time.
Ambiguity is my friend. I don’t have an event with the finality of a presidential election being held on November 8th. But even if I did, there are ways around that too. You can’t keep stats on me and grade me if I don’t give you a toehold…
Dan Gardner continues:
A big problem is vague language. When some pundit says something “could” or “may” happen, or there’s “a distinct possibility” that it will, she is quite literally saying it may or may not happen. Good luck scoring that. Even something like “Trump will win” has hidden ambiguity. If Trump loses the popular vote but wins the Electoral College, is it right? What about the reverse? It’s impossible to say beyond dispute. Unfortunately, vague language is far more common in media reports about forecasting than precise, scorable terms.
So when I read things like Seth Klarman is holding a lot of cash or Howard Marks is worried or Professor Shiller sees a bubble or Stanley Druckenmiller is hedging or George Soros is buying puts or Ray Dalio says this could be the 1930’s or David Tepper says “now is nervous time” or David Einhorn goes off on a tangent about the Fed and jelly donuts – all of these things have happened, by the way – I ask myself whether what they’re saying is in any way applicable to my own situation or quantifiable. And, of course, it isn’t. These very bright and accomplished investors have opinions, and they’ve decided to share them in an investor letter or with a reporter who’s managed to get through to them or whatever.
But their comments and predictions aren’t any easier to follow and grade than anyone else’s. Literally none of this has any utility beyond being possibly interesting or good for context.
The pundit playbook is now to predict the failure of everything so you can tell everyone “I told you so” at least once
— Ben Carlson (@awealthofcs) September 4, 2017
Which brings me to a new development in the realm of punditry that I thought worth pointing out. It has become fashionable these days to simultaneously predict the demise of everything. Venture investments, stocks, Bitcoin, the art market, Tesla, avocados, Snapchat, luxury real estate, etc. As Napoleon once said about his army, “Quantity has a quality all its own.” The little emperor didn’t need to have the best trained troops as he mowed down opposition across the continent – he just needed a whole lot of them.
The same could be said for our market and economic calls. If I offer enough of them, I’ll never be in short supply of things to point to when demonstrating my prescience. And I can count on you forgetting the rest of them regardless.