Investing with the Trend: A Rules-based Approach to Money Management

Chapter 5The Illusion of Forecasting

Those who have knowledge don’t predict. Those who predict don’t have knowledge

Lao Tzu

So that there can be no confusion, I want to state my honest heartfelt opinion on forecasting: I adamantly believe there is no one who knows what the market will do tomorrow, next week, next month, next year, or at any time in the future—period.

Hindsight is a wonderful tool to use in order to know why something might have occurred in the past, but rarely is the cause known during the event itself. The prediction business is gigantic. William Sherden, in The Fortune Sellers, claimed that in 1998 the prediction business accounted for $200 billion worth of mostly erroneous predictions. (B52) Can you imagine with the growth of the Internet and globalization, what that industry is today? Frightening! As Oaktree Capital Management’s Howard Marks says, “You cannot predict, but you can prepare.”

Dean Williams, then senior vice president of Batterymarch Financial Management, gave a keynote speech at the Financial Analysts Federation Seminar in August 1981, and made some almost prophetic comments about investing that are as true today as they were then. He spoke about the relationship between physics and investing, but I have previously discussed that subject. Another comment was, “One of the most consuming uses of our time, in fact, has been accumulating information to help us make forecasts of all those things we think we have to predict. Where’s the evidence ...