Comments on: The Folly of Forecasting http://www.mebanefaber.com/2010/03/01/the-folly-of-forecasting/ Stock Market and Investing Blog of Mebane Faber Tue, 11 Oct 2011 15:24:53 +0000 hourly 1 http://wordpress.org/?v=3.2.1 By: A Roundup of Market Forecasts – World Beta – Engineering Targeted Returns and Risk http://www.mebanefaber.com/2010/03/01/the-folly-of-forecasting/comment-page-1/#comment-18888 A Roundup of Market Forecasts – World Beta – Engineering Targeted Returns and Risk Thu, 06 Jan 2011 00:42:29 +0000 http://www.mebanefaber.com/?p=2637#comment-18888 [...] time readers know my feelings about market forecasts.  I was going to write an article about recent predictions by Biryini, Shiller, and Prechter but [...] [...] time readers know my feelings about market forecasts.  I was going to write an article about recent predictions by Biryini, Shiller, and Prechter but [...]

]]> By: chris http://www.mebanefaber.com/2010/03/01/the-folly-of-forecasting/comment-page-1/#comment-4478 chris Sat, 06 Mar 2010 10:16:56 +0000 http://www.mebanefaber.com/?p=2637#comment-4478 another board that i really like is tierney. check it out <a href="http://tierneyrides.com" rel="nofollow">tierneyrides.com</a><br> now living in austin, it's the closest thing to snowboarding i've got! another board that i really like is tierney. check it out tierneyrides.com
now living in austin, it's the closest thing to snowboarding i've got!

]]> By: chris http://www.mebanefaber.com/2010/03/01/the-folly-of-forecasting/comment-page-1/#comment-3767 chris Sat, 06 Mar 2010 04:16:56 +0000 http://www.mebanefaber.com/?p=2637#comment-3767 another board that i really like is tierney. check it out <a href="http://tierneyrides.com" rel="nofollow">tierneyrides.com</a><br> now living in austin, it's the closest thing to snowboarding i've got! another board that i really like is tierney. check it out tierneyrides.com
now living in austin, it's the closest thing to snowboarding i've got!

]]> By: bgreen http://www.mebanefaber.com/2010/03/01/the-folly-of-forecasting/comment-page-1/#comment-3747 bgreen Wed, 03 Mar 2010 13:25:33 +0000 http://www.mebanefaber.com/?p=2637#comment-3747 take a run at this test. it demonstrates very clearly how experts fool themselves into confidence. am going to make any new money manager sit this in future<br><br><a href="http://www.projectionpoint.com/" rel="nofollow">http://www.projectionpoint.com/</a> take a run at this test. it demonstrates very clearly how experts fool themselves into confidence. am going to make any new money manager sit this in future

http://www.projectionpoint.com/

]]> By: keithpiccirillo http://www.mebanefaber.com/2010/03/01/the-folly-of-forecasting/comment-page-1/#comment-3745 keithpiccirillo Wed, 03 Mar 2010 02:45:29 +0000 http://www.mebanefaber.com/?p=2637#comment-3745 One additional is "illusory superiority"...recall Svenson's safety driving study wherein 93% of Americans and 63% of Swedes put themselves in the top 50 ( above median) percent. <br>Clearly we can't all be better than average, but we have put a lot at stake in Mr. Bernanke being an excellent driver. One additional is “illusory superiority”…recall Svenson's safety driving study wherein 93% of Americans and 63% of Swedes put themselves in the top 50 ( above median) percent.
Clearly we can't all be better than average, but we have put a lot at stake in Mr. Bernanke being an excellent driver.

]]> By: keithpiccirillo http://www.mebanefaber.com/2010/03/01/the-folly-of-forecasting/comment-page-1/#comment-3743 keithpiccirillo Wed, 03 Mar 2010 02:30:17 +0000 http://www.mebanefaber.com/?p=2637#comment-3743 Forecasting by its design implies someone will find it actionable but there are a myriad of biases to be accounted for, some with unintended consequence. <br>Think of a CFO with a <I>motivational</I> bias with an incentive to reach an outcome.<br>Punishment: "This forecast is too low, they will cut our budget"....or <br>Reward: "Lower forecasts means lower targets that we can meet".<br>Below is a relative link:<br><br><a href="http://www.bbsconsultants.com/documents/06_2009_tabatabai.pdf" rel="nofollow">http://www.bbsconsultants.com/documents/06_2009...</a><br><br>Author Malcolm Gladwell demonstrates the hazards of statistical reasoning and shows this kind of thing in his writings. It's kinda like what Dirty Harry said, "A man's gotta know his limitations". Forecasting by its design implies someone will find it actionable but there are a myriad of biases to be accounted for, some with unintended consequence.
Think of a CFO with a motivational bias with an incentive to reach an outcome.
Punishment: “This forecast is too low, they will cut our budget”….or
Reward: “Lower forecasts means lower targets that we can meet”.
Below is a relative link:

http://www.bbsconsultants.com/documents/06_2009…

Author Malcolm Gladwell demonstrates the hazards of statistical reasoning and shows this kind of thing in his writings. It's kinda like what Dirty Harry said, “A man's gotta know his limitations”.

]]> By: tetranomad http://www.mebanefaber.com/2010/03/01/the-folly-of-forecasting/comment-page-1/#comment-3740 tetranomad Wed, 03 Mar 2010 00:38:00 +0000 http://www.mebanefaber.com/?p=2637#comment-3740 The overconfidence thing reminds me of the Bertrand Russell quote: "The whole problem with the world is that fools and fanatics are always so certain of themselves, but wiser people so full of doubts." The overconfidence thing reminds me of the Bertrand Russell quote: “The whole problem with the world is that fools and fanatics are always so certain of themselves, but wiser people so full of doubts.”

]]> By: macclary http://www.mebanefaber.com/2010/03/01/the-folly-of-forecasting/comment-page-1/#comment-3739 macclary Tue, 02 Mar 2010 23:57:44 +0000 http://www.mebanefaber.com/?p=2637#comment-3739 Meb for Fed chairman!!<br><br>I don't think forecasting should be dismissed altogether. There are two completely different approaches to forecasting: one is a gut-feel prognostication type forecasting and then there is forecasting based on quantitative models. I just started reading "Super Crunchers" which is all about drawing a distinction between "expert opinion" and data backed models. One key difference is that the quantitative modelers know the error bars on their estimates, but "experts" never seem to review history to see if their guesses are worth anything!<br><br>One reason to forecast is to make money. But, an interesting "feature" of investing is that you can easily go broke with a sound forecasting model by over-betting as a result of over-confidence. If you bet on a system with a 0.7 win rate with the assumption that it has a 0.8 win rate you go broke. But if you only count on winning at 60% of the time then you make money. Meb for Fed chairman!!

I don't think forecasting should be dismissed altogether. There are two completely different approaches to forecasting: one is a gut-feel prognostication type forecasting and then there is forecasting based on quantitative models. I just started reading “Super Crunchers” which is all about drawing a distinction between “expert opinion” and data backed models. One key difference is that the quantitative modelers know the error bars on their estimates, but “experts” never seem to review history to see if their guesses are worth anything!

One reason to forecast is to make money. But, an interesting “feature” of investing is that you can easily go broke with a sound forecasting model by over-betting as a result of over-confidence. If you bet on a system with a 0.7 win rate with the assumption that it has a 0.8 win rate you go broke. But if you only count on winning at 60% of the time then you make money.

]]> By: Links and a Long Short ETN Launch – World Beta – Engineering Targeted Returns and Risk http://www.mebanefaber.com/2010/03/01/the-folly-of-forecasting/comment-page-1/#comment-3732 Links and a Long Short ETN Launch – World Beta – Engineering Targeted Returns and Risk Tue, 02 Mar 2010 20:11:53 +0000 http://www.mebanefaber.com/?p=2637#comment-3732 [...] “Genius” label.  Anyone willing to call themselves a genius in our field needs to go read my last blog post on the Folly of Forecasting and the must read Montier behavioral PDF the Seven Sins of Fund [...] [...] “Genius” label.  Anyone willing to call themselves a genius in our field needs to go read my last blog post on the Folly of Forecasting and the must read Montier behavioral PDF the Seven Sins of Fund [...]

]]> By: WorldBeta http://www.mebanefaber.com/2010/03/01/the-folly-of-forecasting/comment-page-1/#comment-3730 WorldBeta Tue, 02 Mar 2010 16:57:42 +0000 http://www.mebanefaber.com/?p=2637#comment-3730 Interesting... Interesting…

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