A provocative article in The Atlantic highlights the unsuccessful track record of “expert” forecasters, regardless of their area of specialty or level of experience. However, the article points out that those not invested in a single discipline but rather who integrate “apparently contradictory worldviews” are more successful at predicting outcomes. The article shares findings of a 20-year study conducted in the 1980s by psychologist Philip Tetlock that analyzed over 82,000 predictions from 284 “highly educated… Read More
A recent article in The Wall Street Journal discusses the 40% rule, which it describes as “a favorite forecasting tactic of Wall Street analysts and other prognosticators trying to make a bold call without being too bold.” The article offers comments by Peter Tchir, a market strategist at Academy Securities, who explains that a 40% forecast means you never have to say you were wrong. “Get it right and you can say ‘see, I was… Read More
By John Reese (@guruinvestor) — American philosopher and educator Nicholas Murray Butler once said, ” An expert is one who knows more and more about less and less until he knows absolutely everything about nothing.” His words, both wise and timeless, could apply to “expert” market forecasters. Butler (1862-1947) was president of both Columbia University and the Carnegie Endowment for International Peace, as well as a recipient of the Nobel Peace Prize–distinctions which would make… Read More
The unexpected Brexit vote and Donald Trump’s presidential election victory both occurred despite overwhelming predictions to the contrary, writes John Reese in a recent article for The Globe and Mail. The CEO of Validea illustrates how forecasting in the world of investing is “equally fraught with unpredictable outcomes despite seemingly reasonable expectations.” Reese supports his argument with the research findings of psychology professor Philip Tetlock, who conducted a study of the predictive success of both… Read More
The ability to predict the future sounds pretty enticing, but few (if any) are any good at it. In 2005, Wharton professor Philip Tetlock studied how ‘experts’ did at forecasting, and discovered that they were only slightly better at it than, say, a dart-throwing chimp. He spent the next ten years trying to figure out what separated most forecasters from those few that seemed to have real foresight. Tetlock shared his thoughts, the subject of… Read More
How often are supposedly “expert” forecasters’ predictions right? A lot less often than you might think, according to researcher Philip Tetlock. But in a recent interview on Barry Ritholtz’s Masters in Business podcast, Tetlock says you can take steps to make yourself a better forecaster. Tetlock, a professor at the University of Pennsylvania and author of multiple books on the science of prediction, has found that as a group, supposedly expert forecasters don’t have much… Read More
Writing in Adviser Perspectives, mathematician and economist Michael Edesess discusses Philip Tetlock’s work examining “superforecasters” with co-author Dan Gardner. Superforecasters, as Edesess explains, are the few volunteers in Tetlock’s forecasting study who “measure as significantly and consistently better than the others and much better than a dart-throwing chimpanzee.” Tetlock defines “foxes” and hedgehogs” among the large number of forecasters enrolled in his study. As the Greek poet Archilochus put it, “the fox knows many things,… Read More
In the aggregate, forecasters may be “roughly as accurate as a dart-throwing chimp,” but some forecasters are particularly and consistently far better than average. Credit Suisse reports that the book Superforecasting: The Art and Science of Prediction by Philip Tetlock and Dan Gardner provides important insights into how to improve forecasting skill, perhaps by as much as 60%. In other words, there are measurable differences between run-of-the-mill forecasters and “superforecasters,” and these differences can be a guide to improving forecasting… Read More
What lessons can investors take from 2014? Don’t listen to short-term economic and stock market forecasts, says The wall street journal’s Jason Zweig.
In a recent article for Canada’s Globe and Mail, Validea CEO John Reese says that when it comes to investing, boring is beautiful.