I read an excellent post last year, There will Always Be Sorcerers. I have written on forecasts before, here for example, and at that link, I included some good quotes on planning and prognosticating. Howard Marks came out with a memo (here) which gave me a few more:
- There are two kinds of forecasters: those who don’t know, and those who don’t know they don’t know. – John Kenneth Galbraith
- The greatest enemy of knowledge is not ignorance, it is the illusion of knowledge. – Daniel J. Boorstin
- Forecasts create the mirage that the future is knowable. – Peter Bernstein
- The real trouble with this world of ours is not that it is an unreasonable world, nor even that it is a reasonable one. The commonest kind of trouble is that it is nearly reasonable, but not quite. Life is not an illogicality; yet it is a trap for logicians. It looks just a little more mathematical and regular than it is; its exactitude is obvious, but its inexactitude is hidden; its wildness lies in wait. – G. K. Chesterton
- Forecasts usually tell us more of the forecaster than of the future. – Warren Buffett
- I never think about the future – it comes soon enough. – Albert Einstein
- It’s frightening to think that you might not know something, but more frightening to think that, by and large, the world is run by people who have faith that they know exactly what’s going on. – Amos Tversky
- The inability to forecast the past has no impact on our desire to forecast the future. Certainty is so valuable that we’ll never give up the quest for it, and most people couldn’t get out of bed in the morning if they were honest about how uncertain the future is. – Morgan Housel
- No amount of sophistication is going to allay the fact that all of your knowledge is about the past and all your decisions are about the future. – Ian H. Wilson (former GE executive)
(The memo is worth reading in its entirety. If you get to the end of it, I am clearly in the “I don’t know” school.)
The point made in that final quote is known in philosophy as Hume’s Problem of Induction – and I think investment management is mostly applied epistemology!
The penultimate quote above from Morgan Housel reminds me of this WWII story (from Peter Bernstein’s Against the Gods):
One incident that occurred while [Nobel Laureate Ken] Arrow was forecasting the weather illustrates both uncertainty and the human unwillingness to accept it. Some officers had been assigned the task of forecasting the weather a month ahead, but Arrow and his statisticians found that their long-range forecasts were no better than numbers pulled out of a hat. The forecasters agreed and asked their superiors to be relieved of this duty. The reply was: “The Commanding General is well aware that the forecasts are no good. However, he needs them for planning purposes.”
And here are two more quotes I have often used (though not in the sources above):
- We’ve long felt that the only value of stock forecasters is to make fortune tellers look good. Even now, Charlie and I continue to believe that short-term market forecasts are poison and should be kept locked up in a safe place, away from children and also from grown-ups who behave in the market like children. – Warren Buffett
- I think everybody who predicts the future with a straight face should be required to change out of the business suit, wrap himself in a gypsy shawl, wear one of those pointed wizard’s hats with a picture of a crescent moon on it, and make conjuring sounds over a crystal ball. That way, everybody would know exactly what’s going on and how much credibility to give it. – Bob Veres
In other words, we should just predict the market will go up. We will be right about 75% of the time, which isn’t great, but almost certainly better than any other prediction.
I wrote more elaborately on this a few years ago: What’s the Market Going to Do?
(TL; DR: “Most likely between a 33% loss and a 50% gain, but there is about a 1-in-20 chance it could be outside that range.”)