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Here They Come Again—The Soothsayers and Snake Oil Salesmen

Scott's Column

Since the stock and bond markets started misbehaving at the beginning of the year, we have been assaulted pretty much non-stop by the usual crop of product-pushers, market timing advocates, and crystal ball gazers. Do yourself a favor and ignore them all.

In 2006 Philip Tetlock published his 20-year study of the efficacy of experts at predicting the future. He concluded they were no more effective than a dart-throwing monkey.

In 2016 Wim Antoons reviewed research done by the CXO Advisory Group. Forty-two of the 68 gurus studied (61.8%) were accurate less than 50% of the time. Antoon studied 6,582 forecasts and found that “after transaction costs, no single market timer was able to make money.”

Howard Marks recently wrote an illuminating article called The Illusion of Knowledge. The article provides extensive documentation of a very simple point. There are simply too many variables in the equation that drives the financial markets. No one can crack the code.

These studies are the tip of the iceberg. Many more have documented the failures of gurus in predicting the behavior of complex adaptive systems like the stock market and the economy.

No one has ever written a book, article, or paper about how well gurus predict the future. The guru Hall of Fame is an empty room.

Time is our most precious commodity. Save yourself some time and stop reading articles that predict the future direction of the securities markets or the economy and ignore product pitches from those who purport to have the answer to what lies ahead.

Despite the efforts of millions of smart people, no one has figured out how to consistently bob and weave their way through the ups and downs of the markets.

Yet the number of gurus, prognosticators, and pontificators has never been greater. How do they survive and even thrive when they have so little of value to offer?

Because our inner need for certainty is very strong. We badly want to believe that there is order in the world and that it can be discerned and acted upon.

We abhor the darkness we see when we face the future. Forecasts and predictions give us the illusion of light.

The same is true in life. Unfortunately for us, that equation is even more complex and more unsolvable than the one governing the behavior of the financial markets.

But our desire for certainty and order is always with us. So, our anxieties increase, our blood pressure rises, and our angst weighs us down. We seek power to give us the sense that can control our destiny. We join tribes and howl at the moon.

Take heart and accept that uncertainty is inherent in our journeys. Relish it. Maybe re-label it as “surprise” and view it like the presents you got at your birthday party when you were a kid.

You will like some of the presents you get and dislike others. Make the best of all of them. But don’t pretend that you or anyone else knows what’s inside the box.

It doesn’t make you powerless. Quite the opposite. It allows you to live your life (and invest) based on the reality that unfolds, rather than hollow babble flowing from empty heads.