“Prediction is very difficult, especially if it’s about the future.”
– Niels Bohr
Football is serious business in the South. Long before the dawn of 24 hour sports channels on TV, Athens, Georgia native Leonard Postero made a name for himself with his syndicated weekly radio show Leonard’s Losers. He used a quick delivery mixed with a healthy dose of alliteration to make prognostications on upcoming college football games. Each prediction ended with the familiar “Leonard’s loser is…”
Emotion vs. Intellect
There is a good analogy to be drawn between predicting football scores and predictions in the financial markets. Tens of thousands of people in various forms of media all across the country make their living in both sports and investing trying to do essentially what can’t be done…predicting what will happen in the future. What we know, with football and investing, is that there are a wide range of possible outcomes. What we don’t know in advance is the particular result from a specific game or a specific day in the market.
If you unravel the reasons behind the attraction to these predictions, in most cases it is purely emotional. There is no intellectual or scientific underpinning for these forecasts. John Bogle, founder of Vanguard said in an interview recently that he had asked competitors for years about the intellectual basis for market timing and stock selection. To date, he said, “no one has offered any intellectual foundation” for these beliefs. They are just preying on the human emotions of fear and greed.
Depending on how it is calculated, investors can lose up to four percent per year in returns from participating in the “performance derby” associated with market timing. That’s a very high price to pay for trying to forecast what stocks will do next. Remember, you can’t control the markets but you can control your emotions. Ready for a real conversation?