My friend Jim Stewart of The New York Times was just on our air. After briefly chatting about 2016, he concluded with this observation: “What really stands out is how the smart people are almost always wrong.”
Amen to that! It’s been a wild year for trader sentiment…what’s amazing is how wrong sentiment has been this year.
We started out with a stomach-churning drop of nearly 2,000 points in the Dow in January — sentiment was, we were heading for a recession. Wrong!
Then in June, Brexit. Sentiment was solidly on the side that the vote would be to stay and that if there vote was to leave it would be a disaster for the markets. Wrong on both counts!
Then the election. Most felt a Donald Trump victory was unlikely and that if it happened volatility would rise and stocks would suffer. Wrong again…at least so far.
Why do we keep making predictions when everyone is so bad at it? Because humans want to know about the future. It makes us feel like we’re a little more in control of events.
Is there anything we can do to improve forecasting? Here’s hoping machine learning and big-data analytics will help. Wouldn’t it be something to find out machines were just as bad at predicting the future as humans are?
I’m not against forecasts. Let’s keep doing it…but did you ever notice how often the people with the strongest opinions are the ones who are most wrong?
So, here’s to more forecasting. Let’s just be cautious when we’re reading them, and a bit more humble when we’re writing them.
Happy New Year, and here’s hoping 2017 is a prosperous one for you and your family.