Hi Guys,
I recently read and was favorably impressed by a book titled "Superforecasting: The Art and Science of Prediction". The authors are Phil Tetlock and Dan Gardner. The book was entertaining and I learned a lot. I recommend you give it a look/see.
Today, I stumbled on an interview with Tetlock that was recorded almost a year ago. It too is worthy of a little time commitment. Here is a Link that allows access to the interview:
https://www.farnamstreetblog.com/2015/12/philip-tetlock-prediction/This Link gets you into the ballpark and you will need to hit a few more buttons to hear the 48 minute interview.
The good news is that superforecasters really exist. But more importantly, with just a little training and practice, forecasting skills can be improved. That just might be helpful in the design and maintenance of our portfolios.
One main lesson is to respect historical probabilities. Start with a known base rate and adjust from that point dependent upon specific circumstances that could impact that baseline. Keep an open mind to any developing influences. Keep an honest scoring of both successes and failures along with an assessment of why that outcome happened. Over time, Tetlock suggested that forecasting improvements in the 10% range are possible. Integrated over time that could substantially enhance the end wealth in a portfolio.
Tetlock has been working in this forecasting field for a long time so his findings deserve some attention. They also might be somewhat biased. But I want to be a believer. My forecasting abilities sure need some serious work.
Best Regards.
Comments
I have found during the more recent years one can based upon fundamentals find value in the markets; but, because of the flash crowd and their fast trading computers the markets today move more based upon technicals and where big money chooses to position more so than fundamental finds.
An example of what I am saying is that there has been good value in emerging markets, for some time now, based upon their low p/e ratios ... but, most of the market action has been elsewhere. Recently, financials which also have been a value play due to their low p/e ratios have now begun to move upward based upon anticipated fed rate increases and big money has now begun to move in their direction over others.
Another recent example of this is small caps. They were dogs for a while but came on strong with the fast money crowd moving into them this past month or so. Good thing I owned my allocation in them prior to their run up based upon their prospective value. Not looking to put new money to work there now.
So, be careful ... What might seem to be a good opportunity, might still be a dog, for a while, if investors (fast money) simply turn to other areas.
Currently, I have about 5% of my equity allocation in emerging markets while I have about 13% in financials. I'm thinking emerging markets will in time be discovered by fast money once other investment avenues become fully invested to over valued.
For me fundamental analysis helps me find areas of potential opportunity and technicals tell me when to move. But, gosh things move much faster today than they did years back.
So, this is my current super dooper forecasting model. Be diversifisied and own something of everything. And, as the clock dials sweeps the hour, minute, and second you will have something most of the time that is in vogue while the other stuff is not exactly cold either. Trying to predict where hot money is moving is a daughting task. Even their super computers don't exacatly know until they find it through discovery. But, I do know this ... sooner or latter they will discover value and move away from the over valued.
I wish all ... "Good Investing."
Skeet
Well said! Thank you for your input. I just know you profit from "good investing" based on your post. You integrate humor into your decision making and you recognize and adjust for the uncertainties in the marketplace. More power to you.
Thank you once again.
Best Wishes.