Hindsight is 2020. Foresight isn't.

Most of us would like to know what the future holds and we get some comfort out of trying to forecast what may lie ahead, but can we make investment decisions on forecasts, opinions and views?

Following on from my December article Christmas news and predictions where I talked about prediction, especially predictions about the markets and how it is an impossible job as it is only speculation. Also picking which shares to buy or sell is also speculation as the price of the share already reflects all known information and is the consensus view of many market participants. It is only new information that will shift the price and new information is random and unpredictable.

Prediction not only is very difficult in finance but also in other fields and here is a study that was done on them and famous wrong predictions over time:

Philip Tetlock collected forecasts from 284 highly educated experts from the fields of politics and economics. They averaged twelve years of experience in their chosen fields. This project lasted 20 years and contained 82,361 predictions of the future.

Their prediction results were abysmal.

  • 15% of what never was going to happen did
  • 25% of what is highly unlikely to occur did…..and so on

Other famous prediction failures:

  • “It'll be gone by June." - Variety Magazine on Rock n' Roll, 1955
  • “When the Paris Exhibition [of 1878] closes, electric light will close with it and no more will be heard of it.” - Oxford professor Erasmus Wilson
  • "Everyone acquainted with the subject will recognize it as a conspicuous failure." - Henry Morton, president of the Stevens Institute of Technology, on Edison's light bulb, 1880
  • “A rocket will never be able to leave the Earth’s atmosphere.” — New York Times, 1936
  • “The Americans have need of the telephone, but we do not. We have plenty of messenger boys.” — Sir William Preece, Chief Engineer, British Post Office, 1878
  • “This 'telephone' has too many shortcomings to be seriously considered as a means of communication. The device is inherently of no value to us." - Western Union internal memo, 1876
  • "There is not the slightest indication that nuclear energy will ever be obtainable. It would mean that the atom would have to be shattered at will." - Albert Einstein, 1932
  • “I think there is a world market for maybe five computers." - Thomas Watson, chairman of IBM, 1943
  • “There is no reason for any individual to have a computer in his home." - -Ken Olson, president, chairman and founder of Digital Equipment Corporation (DEC), in a talk given to a 1977 World Future Society meeting in Boston
  • "The horse is here to stay but the automobile is only a novelty—a fad." - -The president of the Michigan Savings Bank advising Henry Ford's lawyer not to invest in the Ford Motor Co., 1903
  • "Television won't last because people will soon get tired of staring at a plywood box every night." - -Darryl Zanuck, movie producer, 20th Century Fox, 1946
  • "The wireless music box has no imaginable commercial value. Who would pay for a message sent to no one in particular?" - -Associates of David Sarnoff responding to the latter's call for investment in the radio in 192
  • "There will never be a bigger plane built." - - A Boeing engineer, after the first flight of the 247, a twin-engine plane that holds ten people
  • “The world potential market for copying machines is 5000 at most.” — IBM, to the eventual founders of Xerox, saying the photocopier had no market large enough to justify production, 1959

Even banks with all their resources can’t get it right:

  • One study compiled a decade of annual dollar-to-euro exchange-rate predictions made by 22 international banks: Barclays, Citigroup, JPMorgan Chase, and others. Each year, every bank predicted the end-of-year exchange rate. - The banks missed every single change of direction in the exchange rate. In six of the 10 years, the true exchange rate fell outside the entire range of all 22 bank forecasts.

So here at Optima Wealth when it comes to investing, we believe in avoiding speculation, being highly diversified and keeping costs low. Then sticking to your strategy as your own personal circumstances dictate. All this will lead to a much better investment experience.

I have also attached an article from our friends at Dimensional FA in relation to this. Thanks, and have a great and prosperous 2020.

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