Smart ETF/No Load Fund Investing: The Scandal Of Predictions

Ulli Uncategorized 2 Comments

Occasionally, I am being asked by various readers about my opinion on what I think where the market is headed or how a certain no load fund or ETF might perform in the future.

As I try to emphasize repeatedly in my writings, I follow trends, and I am not in the business of predicting future events. Personally, I think making any kind of prediction is for losers only because it simply can’t be done with any reliability.

Nassim Taleb’s book “The Black Swan,” about which I wrote a few weeks ago, had an excerpt that best describes the “expert” problem we are all facing, especially in the financial services industry. He refers to the work of psychologist Philip Tetlock as follows:

“Tetlock studied the business of political and economical “experts.” He asked various specialists to judge the likelihood of a number of political, economic and military events occurring within a specified time frame (about five years ahead). The outcomes represented a total number of around twenty-seven thousand predictions, involving close to three hundred specialists. Economists represented about a quarter of his sample.

The study revealed that experts’ error rates were clearly many time what they had estimated. His study exposed an error problem: there was no difference in results whether one had a PhD or an undergraduate degree.

Well published professors had no advantage over journalists. The only regularity Tetlock found was the negative effect of reputation on prediction: those who had a big reputation were worse predictors than those who had none.”

So, next time you are tuned into in one of those testosterone-charged talking head shows on the financial news channel, try reading this article again and realize that most financial news is geared towards entertainment with absolutely no investment value.

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Comments 2

  1. Predictions are for losers? Really. Well, you must base your selections today on how well you think they will perform tomorrow. If you invest to ride a trend it’s because you think that trend will continue–otherwise why follow it? By any other name, that is a prediction.

  2. I disagree. If I use upward momentum to invest in a fund/ETF, I am following a basic principle in physics: A body in motion tends to stay on motion. If it does not, I use a disciplined exit strategy to get me out, if I am wrong.

    That is far different than making a prediction such as the S&P; should close around such and such a number by year end. Or, the social security deficit will reach this number by 2040. Those are nothing but useless assumptions with no sense of reality. I consider these a losing proposition.


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