Forecasters never learn, and never stop

  • “Economic analysis colored by political bias equals awful investing advice.”— Money manager/blogger Barry Ritholtz, writing in Bloomberg View on 12/14/16, about one of the many 2016 forecasts that missed the mark — the Washington Times’ call for a recession in 2016. Read more
     
  • “They have again obliged us today, by misguiding investors and ordinary Americans with more random information that they claim emulates the future... [Forecasters generally] are much worse than random chance alone would predict.” — Salil Mehta, a former director of research for the Treasury’s Troubled Asset Relief Program, discussing on his Statistical Ideas blog and in the New York Times a recent Barron’s article that contained the 2017 market forecasts of many Wall Street analysts. Read more here and here.

The nature of investing

  • “First and foremost, don’t even think about trying to extrapolate macroeconomic, demographic, and political events into an investment strategy. Say to yourself every day, ‘I cannot predict the future, therefore I diversify.’” — Bill Bernstein, quoted in a 12/6/16 post by Ben Carlson in his A Wealth of Common Sense blog, in which he discussed how difficult it can be to stay diversified when one asset class is performing so much better than another. Read more
     
  • “Every asset is an investment in some people’s hands and a speculation in others’. So it isn’t what you buy, but rather why you buy, that determines whether you are investing or speculating.” — Jason Zweig, in a 12/9/16 Wall Street Journal column about the difference between investors and speculators. Read more
     
  • “Gathering information is a science. Filtering out noise is an art.” — Morgan Housel, in a 12/8/16 Collaborative Fund post on the art and science of investing. Read more
     
  • “Because humans are involved at every level and in every step, markets are always less predictable than we think and our human responses to those markets are always less rational than we’d like to think.” — Robert Seawright, in a 12/9/16 post on his Above the Market blog about the need for an evidence-based approach to investing. Read more

Choosing a strategy you can stay with

  • “Rather than seeking optimization, investors would do well to implement a plan that they can stick with over the long term. We have to first be honest with ourselves about our true goals and what we’re willing to sacrifice to achieve them.” — Investing blogger Matthew Garrott, writing on 12/9/16 that the goal for most investors is not to make as much money as possible, but to maintain a certain standard of living while saving for retirement. Read more
     
  • “I can’t prove this, but I’d imagine it’s more difficult to go through prolonged periods of underperformance while the rest of the world is singing Kumbaya than it is to stay in stocks through a bear market. In the three years from March 1995-March 1998, the S&P 500 rose 134% while the Permanent Portfolio rose just 36%. It would have taken an almost inhuman amount of discipline to have stayed the course.” — Michael Batnick, author of The Irrelevant Investor blog, writing on 12/2/16 with a lesson for SMI members who are using the Dynamic Asset Allocation strategy, which is patterned to a degree after the Permanent Portfolio. The strategy, designed with downside protection in mind, can be emotionally difficult to stay with during bull markets. Read more
     
  • “Let’s remember that the removal of central-bank crutches, however gradual, and the transition to fiscal support could be bumpy and bring about a widening range of potential outcomes….It makes sense that a market less muffled by trillions in central-bank liquidity will become more volatile.” — Kopin Tan in a 12/10/16 Barron’s article explaining why risk is rising in the markets. Read more