One of things that always intrigued me about this time of year is the number of pronouncements that come out regarding predictions for the coming year. In my world if you are going to display a complete lack of credibility then all you need to do is to make predictions about what such and such a market will do. Expert predictions are intriguing because we know that overall experts perform no better than the average member of the public when tested. Despite this people, particularly traders crave certainty. Yet, it is the uncertainty of markets that grants us the potential to either make or lose money. However, when an expert acknowledges correctly that the future is unknown then they are perceived as uncertain as opposed to simply being honest. Intriguingly being wrong doesn’t seem to stop experts from making forecasts – unlike science economic forecasting does not seem to be self correcting. I Googled stock market crash 2014 and here are some of the returns I got.
2014 crash will be worse than 1987’s: Marc Faber ( to be fair Marc Faber has been predicting that the market will crash every year since Moses played fullback for the Mt Sinai Under 13’s )
My completely unscientific survey of Google produced 18,000,000 returns regarding a market crash in 2014. It is illogical to assume that all were predicting a crash and that the majority were not simply repeats. However, everyone who predicted a crash in 2014 was wrong, as were those who predicted one in 2013,2012,2011,2010 and 2009. Despite being wrong such folks will continue to make the same prediction over and over again – eventually they will be right but in the meantime they will cost the gullible a great deal of money.
The issue with predictions is not only that they are made but that people become emotionally wedded to them. A prediction is in its simplest form an expression of ego – it is a declaration to the world that you know what is going to happen and have articulated your view for all to see. Once your ego becomes coupled to something then things start to fall apart because of an inability to remove yourself from your decision. To admit that your prediction was wrong is simply too painful. My view is that there is great freedom to be found in not knowing what is going to happen nor having any form of emotional investment in what might happen. However, this is not what traders want, most want to exist in a state of certainty never realising that certainty is not what is required.