Prediction Impossible
A viral video that is circulating on the Internet is about well known anchor Udayan Mukherjee at a Investor regretting the fact that he as a television commentator (Anchor) has contributed to “leading people to a very short-termist, predictive kind of a mindset, for equity markets.” (his words in Quotes)
For any one who has followed me on Twitter, I am sure you would know that I am highly skeptical of Prediction. But does that really mean any and every Prediction is a game of dice and nothing more. As Philip Tetlock, the noted authority on Forecasting wrote in his recently acclaimed book “Superforecasting” and I quote
“We are all forecasters. When we think about changing jobs, getting married, buying a home, making a investment, launching a product, or retiring, we decide based on how we expect the future will unfold. These expectations are forecasting”
There are basically two kinds of forecasting. Implied forecasting and Explicit forecasting with a thin line differentiating them both. Most of the time, we forecast implicitly about every small thing in our normal life. Explicit forecasting is when we make bigger decisions – the decision to buy a house on loan is based upon our confidence that we will continue to earn in the future which will enable one to pay off that loan.
Most of the time, Explicit forecasting is not something you tend to do every other day of the week. Longer the time frame, higher the probability that forecasting is more explicit in nature and naturally higher is also the risks that the forecast may not come out as one expected.
The risks we take are based on our calculations of how our predictions will work out and whether it is worth the risk. You will not jump off a building from its 50th floor even if you have tied a Net at the 10th floor which will eventually halt your fall. There are just too many moving parts that could go wrong and the thrill of a fall is not worth the risk it involves.
When it comes to finances though, we really do jump off from higher levels and that too without knowing whether there is even a Net at some level that will ensure that one is not reduced to a pulp of broken bones and wasted muscles.
Day in and Day out we are bombarded with information pertaining to both stocks we hold and hundreds of those we don’t. And the biggest issue is that financial media makes it seem so easy.
The other day I calculated that on a normal day, CNBC had broadcast 48 (Buy / Sell combined) trades during the market hours. Even a sane long term investor can get enticed in the hope of some quick bucks.
But blaming the Television Channels is wrong since end of the day, its business for them and they will only showcase what they believe the viewer wants. Given the fact that there are these days hundreds if not thousands of Analysts who survive by selling fear with the hope that at least a few of them will be interested enough to check out their paid services.
Investors are generally fearful and want guidance for which they turn towards the financial media which is filled with quacks out to make a big buck by playing on one’s greed.
I don’t watch business channels but I am pretty sure that its rare for any Analyst to come out there and say that he honestly doesn’t know what the long term holds and the best way to play the markets for the vast majority who have no clue on how to read Balance Sheets or write programs to identify stocks that are meeting certain characteristics is by just investing regularly in Nifty Bees.
Channels like CNBC have done a great service by bringing the markets closer to the investing public while at the same time they have done irreversible harm by having programs where stock picking is seen equivalent to a game of Dice.
Before the advent of Social Media, Television was the way to get access to news as soon as it hit the wires. These days though, you are more liable to hear things first on Twitter and only the be confirmed on Television.
As a Investor / Trader, I believe business channels have long lost the relevance it used to have. Websites like ValuePickr have made Analysis more crowd sourced and of a much better quality than even those put out by brokerage firms.
With the limited time we have, I believe that the worst way is to spend on watching the Idiot Box especially the financial media. If you were not convinced earlier, hopefully this video by Udayan convinces you of the futility.
PS: My view is biased due to the fact that I neither have appeared on Television nor have anything to Sell. So, there you go 🙂
Recent Comments