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rhythmbreakdown2 profile picture
Predictions are a mugs game...warnings are handled by anticipation and planning and listening to the what's on the railroad track.
So, you have most everything in the market. What if you are ready to retire and now have enough assets through this Fed driven market to retire comfortably? You might sell with any warnings or predictions.
What if you are decades away from retirement?
You might ignore all of this anyhow.
My point is that everyone buys to make money and everyone makes a personal decision to sell. Warnings and predictions are interesting, but should never be acted on out of context.
A warning is useless or bad if it is not backed up by the most important facts, like P/E GAAP, GDP, interest rates, employment stats like jobless claims and new hires.
Mostly the useless category is what I see.

Jeff writes a great weekly article, I don't know when his numbers got him to sell 50% in 2011 but I hope it was before the fall dump. The trick is always getting back in and making it overall worth getting in and out. Most can't do it.
grok42 profile picture
I think DayTraderWins has it the most correct. Supposed "experts" make money/influence/etc by getting their articles widely read. The best way to do that is via fear. Lurid fear sells. Some experts deliberately slant their articles, but I think a lot of them are actually just following their subconscious drive towards their self interest.

It is inherent in the human to promote their self interest even if such promotion involves some or a lot of deception. Just watch commercials on TV or the squawking of politicians (fake news is a good example). The book "Everybody Lies" by Stephens provides some quantitative analysis of this whole area, but is kind of a strange book.

At a more personal level, most investors have serious issues with confirmation bias, which is a similar mechanism. If you want to do some experiments on this topic, ask hard but accurate questions about a positive investment thesis in a SA article. Most of the time the questions get ignored, sometimes they provoke an angry reaction. Occasionally you will get a thoughtful response. This is unfortunate because it is usually much easier to develop an investment thesis for why a stock will do well vs figuring out where the thesis might be flawed. But this is just human nature. For background on that, read "Thinking Fast and Slow". Excellent book on our inherent biases.

My sense is most fear oriented predictions are quickly forgotten by investors, which seems strange. Thus there is not much downside to the author on predictions that excessively emphasize fear. In the meantime, fear will get their article read.

The best approach I have seen to the art of prediction was described in "Superforecasting" by Tetlock. The idea is to identify the factors that will drive the outcome, research them carefully, then make a prediction (eg 50% chance factor X will go up by Y amount) about how those factors will evolve for a given period of time. Then monitor those factors carefully and adjust your prediction as time goes on. I have found that helpful with individual stocks. It might be helpful with macro level predictions, which is what the book covers for the most part. It is not a magic bullet, but it does help you figure out where you got your prediction wrong.

Anyway, just some random thoughts. Good article. Well worth reading.
Simpllly profile picture
Well. according to well-established astrological authorities, Donald J. Trump will die broke. It is a common fate of those born with a Gemini Sun opposite a Sagittarius Moon. This combination also starts life with a wealthy father.

In all honesty, I'm just waiting to see how this one plays out. But it is pretty much a consensus of several modern recognized astrologers.

Please remember what Nostradamus taught us all. Predictions are a lucrative form of entertainment. Investment on the other hand is consistent observation of vigilance.
Troubled Loaner profile picture
Markets are nonlinear so prediction is not possible. Many on Wall Street think they can use a statistical analysis to evaluate prices as if they had Gaussian distributions.
Troubled Loaner profile picture
Markets are nonlinear so prediction is not possible. Many on Wall Street think they can use a statistical analysis to evaluate prices as if they had Gaussian distributions.
Seeking Aloha profile picture
I genuinely appreciate the sentiments expressed in this article... However, if all articles containing "warnings" or "predictions" were limited or expunged from this site there would be few left to chose from for reading...
To paraphrase Steve Forbes of Forbes Magazine:

"You make more money selling the predictions than following them."
Buyandhold 2012 profile picture
"Jeff Miller and Rob Marstrand offer incisive criticism of the misuse of data."

I can understand that. The investors that I know who focus a lot on data and study charts as if they are performing brain surgery generally are not exceptionally good investors. All of that data apparently just gets them confused.

"Kevin Wilson conjectures that the markets have been reduced to state run enterprises trying to repress a sell off."

And God only knows why. It makes absolutely no sense at all. What good does it to do keep the stock market artificially levitated in bubble territory?

The result is that investors who buy now are forced to overpay for stocks. And when a substantial stock market correction occurs, those investors will be up the creek without a paddle.

"Wealthfront warns there is no diversification benefit to using more than one robo-advisor."

I would not use a robo-advisor even if you paid me one million dollars.

What good is a robo-advisor?

Garbage in and garbage out.

Reminds me of my neighbor who spends her day talking to Alexa. I told my wife and kids that if they ever brought Alexa into my house that I would throw her in the trash can.

Robo-advisors? Can't think of anything worse.
capitalistbeneficiary profile picture
Invest alongside the Fed?
I agree with your second bullet point. Wilson is probably close to the mark by saying the markets are state run enterprises (though central banks, I would add). Good luck using charts and fundamentals to make predictions or warnings.
capitalistbeneficiary profile picture
I predict that for the most part, and particularly those with attention span deficits, this essay will be ignored to their detriment and not just investing. I like to look at last year's predictions to see how right or wrong they were. Guess which prevails.
Most of the "warning" guys are in the entertainment business. economics does not sell. Do you really want to correct their vision
Peter Palms profile picture
The supreme court erred when it decided that the government could countrerfeit money and place it in circulation with real money. I believe it will yet reverse this decision. Insolvency actually is inherent in the system itself a system called fractional reseve banking
Both prediction and warning say something about the future. The only difference between them is how strongly they say it.

A prediction is saying something about the future with a lot of confidence and little or no doubt.

While a warning is saying something about the future with some doubts, some conditions, and some reservations.

I think both have a place in financial markets. Because sometimes you know for sure that bad things are going to happen based on what you already know.

For example, when banks were lending lots of money to poor people to buy expensive houses, then you could predict that these debts will never get repaid. Because these borrower had no means of repaying their debts.

You could also predict that housing prices were going to crash, when all those unpaid for houses would end up back in the market, without any poor buyers being able to borrow some more money.

It all depends on the situation. Most of the time, you can only have a limited view of the future. And you can't make any strong predictions about it. But this isn't always the case. Sometimes you can predict the future with a lot of confidence and be right about it too.
SA For FAs profile picture
Interesting challenge, Nick36. I like your examples, as one who has written about these issues in years gone by, but I stand by my comments. You take my subtle distinction and characterize it (quite understandably) as a difference between predictors writing with confidence and warners writing with reservations. That is logical, but I think it is more correct to characterize it as predictors writing with arrogance and warners with humility.

It doesn't really matter how irrational a policy might be, e.g. the pre-crisis housing market. As Keynes correctly observed, markets can stay irrational longer than we can stay solvent.
Jeff Miller profile picture
Nick36 (and Gil) -- Suppose you monitor indicators which gradually rise to a 50% chance of recession in the next year. It is not a prediction, but it is an indication of elevated risk. In 2011, I reduced position sizes by about 1/3 when the SLFSI hit a threshold I monitor. The next year we faced the "fiscal cliff" which I expected to be resolved in time. My position was a minority viewpoint among experts. I reduced positions by 50% because of the risk.

When you are out of the market, you miss the gains and "underperform" for a time. You have a lot less risk. I think this is sensible, since most good predictions are based upon odds.

That said, merely using odds does not make the prediction sound. Those seeking attention often say things like the chance of recession is now 50%. Who can prove them wrong? Either way!

A prediction on warnings.
As time goes by they will become the same and folow the fate of Cassandras.
Peter Palms profile picture
you are correct
Donggle profile picture
The problem with ROBO that its easy to curve fit and impossible for the consumer to know when it was last tweaked. When the software has traded unattended for a reasonable period of time about 7 yrs, you will know if you got anything. There use to be just simple ROBO moving Avg crosses, where are they now?
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