This blog is
posted in conjunction with our Crystal Ball Gazing podcast, just released.
Predicting the
future is a thankless task – literally. If you get it wrong, you are – quite
rightly – mocked for it. If you get it right, you are resented by the majority
who got it wrong. The lives of prophets rarely end happily.
Anyone with the
leisure to examine our archive of podcasts and blog posts over the last few years will
find that our own record of predictions is fairly reliable. Certainly we have
proved far more consistent than the army of economists and analysts who advised
the big banks and governments which got things so spectacularly wrong.
So why are we still
typing away here, not retired, sunbathing on tropical beaches, living off the
zillions we made from reading the markets?
Frankly, predicting in the future is
relatively easy – given an open mind, common sense, and a willingness to spend
a bit of time on basic research – but putting money on your predictions makes
it more difficult. Just as, in quantum physics, the act of observing a particle
seems to change
its behaviour, so gambling on a prediction alters your perception of it.
There is a loss of objectivity. There is a greater temptation to stick with the
crowd. It takes courage to keep following your instincts.
We have never had
that courage. So perhaps we have no right to condemn all those analysts and
economists who at least had the guts to make decisions, and put money – their
own, their employers’, their clients’ – on those decisions. They lost out by
playing it safe but at least they played.
Of course, some of
those who played actually won. Among the minority of “experts” for whom we have
a real respect, Dr Nassim Taleb, of Black
Swan fame, gets more impressive the more we hear of him.
His latest
prediction shows courage of the highest order. Despite the recent recovery in
the stock markets, he sees stocks and bonds as unreliable investments, and
recommends putting money into more tangible assets.
There is a lot of
sense in this. There has always been something of the confidence trick in the
markets – a necessary and profitable confidence trick, but still an illusion
based on confidence. If we are entering a period of prolonged uncertainty – as
population increases and natural resources become scarce – then confidence may
be erratic. The markets may be unreliable. There may still be fortunes to be
made there, especially by those who know what they are doing, but they may not
be the best foundation of a long-term investment portfolio.
As Dr Taleb
advises, play with the markets for entertainment, nothing more.