Looking back, we are hard-pressed to find anyone (columnist, futurist, CIA) who predicted the sudden end of Communism. The decline of the stock market in the summer of 1998 is interesting not for the fact that it happened, but that it was predicted to happen in 1995, then in 1996, then in 1997, and finally --- for a weary few --- in 1998. The same can be said for the sudden decline of 1987.The evidence shows that if the market can be beaten in picking individual stocks, it is damn hard to do, and the vast majority of investment professionals fail trying. The exceptional stock pickers who consistently beat the market year after year, cycle after cycle, can be counted on one hand...and it is not clear whether their success is mostly due to luck...
The answer is probably that the stock market is just too complicated to be put into a basket of predictability. There are many thousands of "analysts," but, says the author, "the odds of getting it right are little better than chance..." One researcher said that the market was "a form of artificial life all by itself." In the days of Adam Smith (the younger) the idea was bruited about that it was nothing more than a "random walk" --- a phrase taken from Nature magazine (1905) on the predictability of finding the location of a drunkard by walking randomly through a field. The author says that two economists analyzed daily stock prices over periods 1951 - 1962, and found that there had only a "3% correlation one day to the next, which means that only 3 percent of the total variation in daily stock prices is explained by historical patterns, and the rest is pure noise."
An analysis of the success of future forecasters over the "past several decades shows that their long-term technology predictions have been wrong about 80 percent of the time..." The proof of this is a study by a Steven Schnaars, who studied forecasts over thirty years in the Wall Street Journal, the New York Times, Business Week, Fortune, Forbes, Time and Newsweek. He states that Herman Kahn, a popular futurist of twenty-five years ago was "somewhere between 75 and 85 percent wrong, depending on the generosity of the grader." Among Kahn's howlers --- predictions for the end-of-the-century, are,
- Very low-cost buildings for home and business use;
- Artificial moons and other methods for lighting large areas at night;
- Automated grocery and department stores;
- Improved capability to "change" sex of children and/or adults;
- "High-quality" medical care for undeveloped areas of the world.
- ...sociologists predicted that higher education would lead to greater toleration for minorities; yet during the 1930s and 1940s, Germany had one of the best educated and least tolerant societies in the world...Sociologists predicted that in the decades after 1970, the growth of industrialization and urbanization would reduce ethnic tensions around the world...
Is there anything that can be reliably predicted? Yes, says the author:
- Of the sixteen types of forecast, only two --- one-day-ahead weather forecasts and the aging of the population --- can be counted on: the rest are about as reliable as the fifty-fifty odds in flipping a coin. And only one of the sixteen --- short-term weather forecasts --- has any scientific foundation. The rest are typically based on conjecture, unproved theory, and the mere extrapolation of past trends...It makes one wonder.
The Fortune Sellers is good journalism, worth the time you give to it. It is well put together, makes sense, and makes us wonder why the hell we would ever spend another cent on anything beyond Madame Shebazz and her crystal-ball down on First and Broadway. The cover is a dandy: "The Cheat," a 15th Century painting by Georges de La Tour. The woman you see over there to the right is looking at the guy in the middle of the page above who is busily pulling a couple of aces out of his back belt. The message: when you pay someone to predict the future (yours, the world's) you might as well be gambling with someone who has a few cards concealed about his person. He wins, you lose.