Those who make their living from crystal balls must dine on broken glass.
It's an interesting insight. It's just not true.
Most Wall
Street suits see no consequence to their bad calls. They keep
appearing on CNBC... and collecting paychecks from the firms that employ
them.If any broken glass is eaten, it's served to the ordinary
investors.
How nice it would be, then, to ignore the crystal ball biz... and shun all
predictions entirely. But there's a problem: Investing for the long term
means taking on risks. That means you have to get a handle on the dangers and
opportunities tomorrow could bring.
Some predictions are "good" in this regard. They are useful or
thought provoking. The vast majority are bad.
So as you navigate the fever swamps of muddled market thinking, you need
to understand two things:
1.
What the hallmarks are of the "good" -- i.e., useful --
prediction (relatively rare).
2.
What the hallmarks are of a "bad" -- i.e., useless or
downright dangerous -- prediction.
Consider the following a rough guide...
Demand Driven vs Insight Driven
Most pundits predict on a schedule. It's their job to tell you what they
see for the coming month, quarter, year and so on.
It is almost always a waste of time.
This is demand driven. Investors want to know "what will
happen by X date." But working off a calendar produces little value.
"Good" predictions, by contrast, are insight
driven. This makes them highly resistant to set schedules.
Insight does not show up on a timetable, like a Swiss commuter train.
Instead, it pops in out of the blue, like your crazy relative from the coast.
You can cultivate insight. But you can't know when it will come. When it
does there is often money to be made. That is why smart investors always keep
a reserve of "dry powder" (cash on hand).
Little Picture vs Big Picture
Bad predictions are typically obsessed with the "little picture"
-- where the Dow will be next week... or whether the next jobs report will
surprise to the upside.
This is "noise" -- useless in other words. The closer you get to
the realm of random fluctuation the less your predictions matter.
Good predictions tend to be "big picture" oriented. They focus
on the grand sweep of history: game-changing events, seismic economic shifts
and paradigm-changing trends. Like deep ocean currents, they are not
preoccupied with swirls on the surface.
Anti-Historical vs Historical
Bad predictions are blind to history. There are countless variations of
"this time it's different" or "here's why XYZ will never
end."
The anti-historical poster child of late is Apple Inc.
As Apple shares soared to $700 a share, history-blind
bulls argued that the profit tree... and the share price... would keep
growing to the sky.
Then growth projections took a whack. And Apple shares fell 30% in a
matter of months.
Bad predictions often run afoul of market history. Good predictions are
historically aware and historically informed. They go a step beyond
plausible... and into the realm of the probable... by drawing on time-tested
lessons from human nature.
Arrogant vs Humble
People who make bad predictions tend to do so with supreme confidence.
People who offer the rare good prediction tend to be more humble.
Think of the line from Yeats: "The best lack all conviction, while
the worst / are full of passionate intensity."
Wise investors know the world is a complex place... with many moving
parts... and are hesitant to "pound the table" -- even when they
think they are right.
More important, the wise are fully aware that no one can know
everything.And knowing what you don't know is one of the most important
attributes of a successful investor. It helps you avoid a "ruinous
loss" by betting big on a bad idea and failing to consider the downside.
Carpe Divitiae,
Justice
High-Frequency Traders Are
Threatening Your Savings
On May 6, 2010, the stock market lost over $1 trillion in just five
minutes. This catastrophe was caused by computers programmed to make hundreds
of trades every minute to capture tiny fractions of profit over and over
again.
The SEC still hasn't figured out how to stop these so-called
"high-frequency traders." Three years later, the situation is even
worse. They're pushing the market to the brink at warp speed every day.
Heck, computers now make up one of every two trades.
This situation could blow up in investors' faces at anytime. You must act
now to protect yourself.
Read this report for more information.
