Torturing financial data until it confesses | Page 2 | General financial discussion | Discussion forum

Loonie said

You say that markets are completely unpredictable, yet you have solid faith that they will succeed over time. There is a contradiction there. However, I understand from your previous comments that you base your confidence on long term trends. But even these are unpredictable. Expectations for the future are a matter of faith based on what has happened in the past - the very thing that we are always told not to trust as a predictor of the future.

Looks like a contradiction. But, it isn't really.

Can't predict each individual coin toss either. But, I can say that about 50% of the time it will be heads.

Can't predict which stocks will be the duds in my portfolio. I know I will regret investing in 20% to 25% of them. The rest will more than make up for the duds.

A month or two ago, I asked Dan Bartolotti, formerly of MoneySense magazine and now with PWL Capital, in person and in public, why he felt that it still made sense to be invested in stock market ETFs since his own statistics clearly showed that over the last 20 years one would have done almost as well in bonds/GICs with almost no risk and without the wild swings. He didn't deny the facts nor did he seem interested in the question. His answer was that that particular scenario was not going to be repeated. …Most of us start out young and naive. By the time we figure out what's going on, it may be too late.

He is correct. The drop in interest rates in the last 20 years and the 2008 meltdown won't be repeated anytime soon. It will be some time before people forget the lessons learned from 2008.

The last serious downturn was 1930's. 2008 - 1930 = 78 years. I think it will at least 70 years, after those of us who remember 2008 are gone.

Either we can see what is coming or we can't. … This is all based on hindsight, which you find unimpressive as a foundation for economic theory. To the extent that it's based on foresight, it has to do with the viability of nations, companies and markets, but that too can change. In a world as unstable as the one we currently live in, nothing seems terribly reliable to me.  

Predictions are hard. Chaos theory says accurate long term predictions aren't possible. So, the lesson is to invest in such a way that accurate long-term predictions are not necessary.