Hi Guys,
The marketplace is inundated with big data, statistics and New Year predictions. Mostly that’s a good thing, but good things can be abused. A classic and obviously fun example of statistical abuse is the infamous Butter in Bangladesh Indicator.
Decades ago some serious researchers explored scores of candidate parameters with a goal to forecast likely market returns. The tightest correlation (like 99%) was between the S&P 500 returns and the butter production in Bangladesh. Random coincidences happen and so do faulty correlations.
Statistics are simply tables of past facts. Today, these statistics are manipulated in countless ways to squeeze out correlations, a few are meaningful, but many are dangerous distortions. Nowadays, with easy access to data and computers, everyone either formally or informally massages these stats to help formulate his decisions or to support post hoc calls. Typically, these analyses are done honestly.
The danger is not only the potential for random error, but also in the reporting of the analysis. The risk of incomplete reporting is real. Herein resides the distinction between honesty and trustworthiness. Politicians, companies, the financial industry, scientists, and reporters are basically honest. However, because of vested interests, they often are not trustworthy.
By honest, I mean that whoever makes the claim is reporting it accurately: he is fully truthful. But he is selective in what he reports. He sorts and screens the data, and only chooses those facts that support his position.
Being trustworthy is more comprehensive. A trustworthy soul reports both accurately and completely. He provides all the relevant information, both positive and negative, in an unbiased, fair manner. Many of us fail this test while remaining honest; we often are trying to sell our opinions.
Each New Year we are exposed to a tsunami of market forecasts. Faithfully, MFOer Ted provides us access to many of them These forecasts should not be merely taken with a grain of salt, but rather with a ton of salt. All may be honestly made, but many are untrustworthy. Facts have been carefully selected to backstop an opinion or judgment.
Incentives vary and may not be immediately monetary, but incentives are always there. Being different and somewhat outlandish attracts special attention and sometimes TV exposure. It’s prudent to be skeptical. Buyer beware and Happy New Year.
Best Regards.
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