CHAPTER 2 For Whom the Bell Curve Tolls

In terms of rites and traditions, not much matches New Year’s. If you ever went on Family Feud and this category came up, you’d have a field day. Champagne toasts! “Auld Lang Syne”! Resolutions! Ryan Seacrest (Dick Clark for graybeards) counting down before a big glittery ball drops on national television!

Here’s another: professional investors’ annual market forecasts. Will they pop up in a game show? No way. But knowing and understanding them can help you make more money than game shows ever can, assuming a 50-show Jeopardy run isn’t in your future.

Parsing professional forecasts can also help you develop one of the most basic principles of contrarianism: thinking different, not opposite. Wall Street strategists are far more gameable than retail investors. As my old research partner Meir Statman and I found in a 2000 study for the Financial Analysts Journal, professional forecasters are wronger stronger and for longer than regular folks. Most individual investors are less stubborn and flip with trends—they won’t stand being wrong for too long before they flip. If they’re skeptical, four months of strong returns can turn them into bulls. If they’re getting optimistic, it just takes one big pullback to flip them back to skeptics. Amateurs often have less confidence in their views. As Meir and I found, when the media swings, individuals swing with them.

The pros are more stubborn. As we wrote then:

Individual investors and newsletter ...

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