Posts filed under “Philosophy”

“What’s your outlook on the markets and the economy?”

I have a few conferences coming up later this summer, and as part of one event, I was asked a series of questions in advance. Its a pre- interview, and I figured I would work my way through the questions a little bit all week.

But then I read the first question — the headline of this post — and it gave me pause. It is a fairly standard query, but always makes me want to shake the reader out of their stupor, shift their perspective in an entirely different direction.

Why?

Because the answer people want is very different than the answer they really need.

So I will attempt to answer the above inquiry three different ways: Direct challenge,  a Socratic query, and discussing the present (not future) state of the markets/economy.

Direct:

1) I do not think my opinion as to the future state of the economy or where the market might be going will be of any value to your readers. Indeed, as my regular readers will tell you, I doubt anyone’s perspectives on these issues is of value. Here are 3 quick reasons why:

First, we have learned that you Humans are not very good at making these sorts of predictions about the future. The data overwhelmingly shows that you are, as a species, quite awful at it.

Second, given the plethora of conflicting conjectures in the financial firmament, how can any reader determine which author to believe and which to ignore? You can find an opinion to confirm any prior view, which is a typical way many investors make erroneous decisions (Hey, that agrees with my perspective, I’ll read THAT!)

And third, relevant to the above, studies have shown that the most most confident, specific and detailed forecasts about the future are: a) most likely to be believed by readers and TV viewers; and b) least likely to be correct. (So you have that going for you, which is nice).

Socratic:

2) Questions:

• Why do you care about my — or anyone else’s outlook on the markets or the economy? Is that possibly of any value to anyone?
• Has anyone ever answered that question in a way that did anything other than fill airtime or page space?
• How will anyone’s opinion about the future help your investors? What’s the track record of these forecasts? Can you tell in advance which predictions will be right or wrong?
• Why is it that you believe than any single person’s opinion will be of any significance?
• Across the spectrum of possible opinions, forecasts and outlooks, someone is going to be correct — how can you tell if it was the result of repeatable skill or merely random chance?

If you answer these questions yourself, grasshopper, you will find the answers you seek.

Present state of the markets/economy:

3) I think it is of much greater value to be able to put the current situation into broader context, via a variety of variables and factors, than make guesses about the future.

We are currently in a post-credit crisis recovery. History shows us these last about 10 years, typically show a weak GDP and slow job creation.

Monetary policy in general can help with liquidity — reducing the odds of another credit freeze up — but can only do so much to improve Employment situation and GDP. To move the needle with that requires a Fiscal response, one that is unlikely to occur given the dysfunctions of Washington D.C.

Compare this with say the fiscal response to the crisis out of Germany, and what it has meant for their GDP and employment situation, and you will better understand what is possible versus our foolishness.

As to the markets, I hope you realize they are separate and apart from the economy. The data overwhelmingly shows that most of the time, stocks and economy are wholly uncorrelated. Over the short and medium term (days weeks months), there is almost no relationship in either direction or magnitude. People often have difficulty accepting that, but the academic studies on it are overwhelming. Over the longer haul (decades), there is some correlation between GDP growth (3-4%) and corporate earnings (6%), and I assume they are not coincidental. But that is only over long periods of time, and even then they can become somewhat disconnected.

Frame of reference is very important. Currently, we have recovered the entire losses from the 2008-09 crash. Looked at from the March 2009 lows, we are up about 146% over 4 years. Looked at from the October 2007 highs, we are barely up a few percent over almost 6 years. And the Nasdaq is still 40% or so below its March 2000 highs, some 13 years ago.

Markets are neither cheap nor expensive. The psychology out there is that the public remains wary — of everything that burned them over the past few years.

I believe many factors are leading to a sort of delegitimization of investing. Everything from lack of prosecution of bankers to HFT are causing the public to turn their collective backs on stocks. Usually, a bull market will end this disregard.

No one is happy with these answers. They are not what they want to hear, but often what they need to hear.

 

Category: Economy, Financial Press, Markets, Philosophy

How You Can Change Your Decision Making

I like the thought process here: How You Can Change Your Decision Making Raise your awareness: Incomplete information and lots of uncertainty leads to poor outcomes Put yourself in the shoes of others: Consider the point of view or experience of other people Recognise the role of skill and luck: Sorting skill from luck is essential for evaluating…Read More

Category: Philosophy

Possible versus Probable

Its Friday, and has become my wont, this is the day of the week I like to kick back, wax philosophical about various thoughts kicking about me noggin. One of the things that I have been noticing of late is the way so many people seem to confuse facts with forecasts. Twitter is rife with…Read More

Category: Hedge Funds, Investing, Mathematics, Philosophy, Venture Capital

QOTD: The Market Giveth . . .

Here is my market quote for today, from MacroMan:   “The Market giveth and the Market inserts red hot pokers before dicing you into small chunks and spreading your remains to the four corners of the earth.”   That’s a bit more severe than “and the market taketh away,” but certainly makes a noteworthy point…Read More

Category: Philosophy, Psychology, Trading

Resigning from the Professional Undertaking of Coin Flipping

I love this quote that manages to combine elements of Uncertainty, Existentialism and Agnosticism:   “I have resigned from the professional undertaking of coin flipping. I am not here to tell you where golds gonna be. I have no idea. That’s my existentialism. I am a student of uncertainty. I have no idea where the…Read More

Category: Investing, Philosophy

Sales Training Versus Mentoring/Industry Knowledge

Its a steamy summer Friday, I got home very late last night, so this morning’s Friday philosophy will be brief: I keep reading about graduates trying to get into Wall Street training programs. I suspect most people do not understand what this means. A brief explanatory: For the new rank and file hires at the…Read More

Category: Apprenticed Investor, Philosophy

David Foster Wallace: This is Water

In 2005, author David Foster Wallace was asked to give the commencement address to the 2005 graduating class of Kenyon College. However, the resulting speech didn’t become widely known until 3 years later, after his tragic death. It is, without a doubt, some of the best life advice we’ve ever come across, and perhaps the most simple and elegant explanation of the real value of education.

THIS IS WATER – By David Foster Wallace from The Glossary on Vimeo.

We made this video, built around an abridged version of the original audio recording, with the hopes that the core message of the speech could reach a wider audience who might not have otherwise been interested.

Category: Philosophy, Video

Steve Jobs 2005 Stanford Commencement Address

Drawing from some of the most pivotal points in his life, Steve Jobs, chief executive officer and co-founder of Apple Computer and of Pixar Animation Studios, urged graduates to pursue their dreams and see the opportunities in life’s setbacks — including death itself — at the university’s 114th Commencement on June 12, 2005.

Transcript of Steve Jobs’ address:

http://news-service.stanford.edu/news…

Stanford University channel on YouTube:

http://www.youtube.com/stanford

Category: Philosophy, Video

The Cave: Plato’s Allegory in Claymation

This is a wonderful clay animation adaptation of Plato’s Allegory of the Cave, which dovetails nicely into my Decline of America piece posted yesterday. The video demonstrates simply and briefly how our decline is probable but preventable.

Read More

Category: Philosophy, Video

America’s Inevitable, Yet Preventable, Decline

“It is no measure of health to be well-adjusted to a sick society.” ~ Jiddu Krishnamurti Much has been said on the topic of America’s rise and its inevitable, although preventable, decline. But most of what has been said or written uses empirical evidence, specifically historical observations, of the rise and fall of empires, most…Read More

Category: Philosophy, Think Tank