![]() Models, by definition, consist of assumptions: “If A happens, then B will happen.” In other I take that to mean theirįorecasters have no choice but to base their judgments on models, be they complex or informal, mathematical or intuitive. Econometricians were heard from a great deal in the 1970s, but I don’t believe they are any longer. Or, to simplify, I’d say econometrics is concerned with building a mathematical model of an economy. This is the practice of looking for relationships within economic data that can lead to valid forecasts. In my first decade or so working at First National City Bank, a word was in vogue that I haven’t heard in a long time: econometrics. The greatest enemy of knowledge is not ignorance, it is the illusion of knowledge. The problem, in short, is that I don’t think there can be a process capable of consistently turning the large number of variables associated with economies and financial markets (the inputs) into a useful macro forecast (the output). In order to produce something useful – be it in manufacturing, academia, or even the arts – you must have a reliable process capable of converting the required inputs into the desired output. Items inspired this memo’s theme: the reasons why forecasts are rarely helpful. Soon thereafter a few additional inputs arrived – a book, a piece in Bloomberg Opinion, and a newspaper article –Īll of which supported my thesis (or perhaps played to my “confirmation bias” – i.e., the tendency to embrace and interpret new information in a manner that confirms one’s preexisting views). It was that lunch that started me thinking about writing yet another memo on the futility of macro forecasting. Person who read this morning’s news.” None of the thoughts expressed, even on economic matters, seemed much more persuasive than the others, and I was absolutely convinced that none were capable of improving investment results. ![]() No one present has particular knowledge of these topics, and certainly not more than the average intelligent ![]() Regular readers of my memos can imagine what went through my mind: “Not one person in this room is an expert on foreign affairs or politics. elections? I listened as a variety of opinions were expressed. What’s likely to be the impact of the 2022 and ’24 U.S. #Zoom stock predictions seriesIt wasn’t organized as a social occasion but rather an opportunity for those present to exchange views regardingĪt one point, the host posed a series of questions: What’s your expectation regarding inflation? Will there be a recession, and if so, how bad? How will the war in Ukraine end? What do you think is going to happen in Taiwan? #Zoom stock predictions plusShortly after putting the finishing touches on I Beg to Differ in July, I attended a lunch with a number of experienced investors, plus a few people from outside the investment industry. There are two kinds of forecasters: those who don’t know, and those who don’t know they don’t know. To explaining why making helpful macro forecasts is so difficult. ![]() Over the years since then, I’ve explained at length why I’m not interested in forecasts – a few of my favorite quotes echoing my disdain head the sections below – but I’ve never devoted a memo I’ve been expressing my disregard for forecasts for almost as long as I’ve been writing my memos, starting with The Value of Predictions, or Where’d All This Rain Come From in February 1993. ![]()
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