Hi Guys,
I admire the trustworthy advice and honest work ethic of Scott Burns and Bill Bernstein. Both have morphed into strong passive Index investment advocates.
This is a follow-up posting to an earlier MFO submittal that referenced a recent Scott Burns article. The internal Link to that article is:
http://www.mutualfundobserver.com:80/discuss/discussion/13537/scott-burns-it-s-twilight-for-managed-mutual-fundsBurns endorses a recent short publication by Bernstein titled “How Millennials Can Get Rich Slowly”. This very recent Bernstein work is directed at young, neophyte investors. Here is a Link to that 16 page document:
https://dl.dropboxusercontent.com/u/29031758/If You Can.pdfI recognize that most MFO participants are beyond the early stages of their investment careers, but you all might benefit by perusing this easy guidebook that features a 5-step program. It is a very practically oriented roadmap. The included recommended reading list for each phase of the 5-steps is useful, albeit not especially surprising.
The booklet is filled with pragmatic wisdom. I particularly liked the following quote, which has appeared in several other financial tomes.
To precisely quote Bill Bernstein, “When all is said and done, there are only two kinds of investors: those who don’t know where the market is headed, and those who don’t know that they don’t know. Then again, there is a third kind: those who know they don’t know, but whose livelihoods depend on appearing to know”.
Bernstein is not kind to market prognosticators. I have managed to find a pathway to a persistent theme that has dominated some of my recent postings. Forecasters can’t forecast.
Please access the referenced Bernstein booklet. It is likely not sophisticated enough for most MFOers, but it might be profitably passed-on to younger family members.
Best Regards.
Comments
"Forecasters can’t forecast."
For weather forecasters,help may be on the way!
Jolly said the new satellite would give the government revolutionary new weather forecasting capabilities, offering imagery with four times better resolution and five times more data. "It's just phenomenal," Jolly said. "It can scan the entire (western) hemisphere in five minutes."
http://www.reuters.com/article/2014/05/19/us-lockheed-satellite-idUSBREA4H0AV20140519?feedType=RSS&feedName=topNews
Thank you for the heads-up on the Lockheed weather satellite. It will surely add to our weather data sets, and should incrementally contribute to more accurate and reliable forecasts. Unfortunately, it’s a long way off with a planned launch date in early 2016. Space launches that far off just don’t excite me. You’re a longer range thinker than I am.
Note that I characterized the benefits as incremental rather than as a watershed event. Predicting weather outcomes accurately rapidly degrades with time because of its interactive complexity. More refined data will help somewhat, but will not resolve the overarching complexity of the governing physical equations.
You reported that Project Engineer Jolly projected “revolutionary new weather forecasting capabilities”. In the article, Jolly also added that solar flare activity would be better measured. I rate these predicted advances in the marginal utility camp. They surely are not “revolutionary”. Chief Engineer Jolly is definitely in a selling mode to justify the costs of this expensive program.
The global equations that control weather are known. However, they are nonlinear with highly interactive feedback loops. Driving inputs are not constant. With time, these factors are maddeningly augmented. That’s why we see an expanding uncertainty cone of influence when hurricanes are approaching our shorelines.
Additionally, just after WWII, MIT meteorologist Edward Lorenz discovered the extreme sensitivity of weather outcomes to very minor changes to the input initial conditions that are required to start the forecast.
Lorenz was a pioneer in using a computer and a weather model to predict actual weather. When attempting to save computer time by restarting a simulation with the outputs from an intermediate time step and running the calculation to completion, and then comparing that final prediction to a simulation that was run without interruption to its endpoint, Lorenz uncovered a huge disparity between these supposedly identical calculations.
The model was unchanged. Shockingly, Lorenz discovered that the outlandish discrepancy in the two simulation’s final output was caused by inaccuracies introduced when stopping and starting the simulation in the two-stage calculation. At that time, computer numerical accuracy was limited to about 6 places. Round-off errors in the sixth decimal place cause the weather predictions to diverge over time in the second-half of that interrupted simulation.
The lesson here is that the weather equations are so complex and interactive, that hyper-accurate initial input conditions are required for accurate forecasts. Our weather measurement tools do not possess that degree of accuracy.
With his finding, Edward Lorenz is often credited with being the father of Chaos Theory. I’m sure you’re familiar with the Butterfly Effect. Supposedly, if a Butterfly flaps his wings in Africa, we might well be exposed to a hurricane on our Eastern coastline. Given the hyper-sensitivity of weather outcomes to miniscule changes in initial conditions, the Lockheed satellite will improve our forecasting success a little, but, of course, it will not redress the nonlinear nature of weather’s governing physics.
Likewise, the benefits from better characterizing sunspot activity also falls in the marginal category. It’s in the direction of goodness, but is not a major league Wow.
The sunspot cycle is well known to be 22 years in time; that’s a complete cycle from maximum to maximum activity. Measuring the activity more accurately will not impact that cycle’s length or its average magnitude whatsoever.
Identifying outlier spikes might prove useful. The few minutes of warning that the satellite sensor will provide will permit us to take marginal defensive measures since our systems have been basically designed to accommodate these long-term radiation fluctuations with protective design safety factors.
The Lockheed satellite will produce useful data for decades. I doubt that its additional data sets will greatly impact the accuracy of our weather forecasters. As a general statement, forecasters will still not be significantly more accurate forecasters beyond 2016, at least not from the increased Lockheed satellite data flow.
Thank you for the reference. I’m pleased that we are increasing our data collection capabilities in all areas. In science, this is a necessary and constant process.
Best Wishes.