Mark Twain once said: “The best predictor of future behavior is past behavior”. In 1969, when the inflation rate jumped to 5%, the best economists predicted that the rate will increase to 6-7% in the early seventies, before declining to below 5% in the second half of the decade. The predictions proved wrong. The inflation rate doubled and increased to 11.5% in 1979.
In 1979, economists chorus ruled that the inflation rate will remain above 10% in the decade of the eighties. They made another mistake. The inflation rate fell to 5% in 1982.
Why we listen to economists, if their knowledge in this case does not exceed ours? We are curious and would like to gain knowledge about the future. If we could read today’s tables of stocks or bonds in tomorrow’s newspaper, soon we would be millionaires. That’s why we listen respectfully and with hope to anyone who talks about the future. But the fact is that no one has a clue about what the next year, next week or even tomorrow will bring. If you want to succeed as a stock market trader, forget the forecasts of economists and other financial advisors.
The Best Way to Predict the Future is to Look at the Past
Each transaction in the stock market represents the seller and the buyer. Seller believes that the price of a stock that he sells, will fall, and the buyer believes that it will rise. Diversity of opinion is the essence of the market and helps to stabilize. However, sometimes this diversity shocks and makes it difficult to make a decision. Here are two examples.
The Past Predicts the Future Quote
Robert Prechter, the genius of Wall Street, is the most famous interpreter of the theory of Elliot Wave. Robert Prechter net worth is about $5 to 12 millions. Less known is the octogenarian Mr. Frost. Both written a book “Elliot Wave Principle“, which was released in the late seventies. This book contains unheard of at that time, the prophecy that the “Dow” index (the common price of 30 largest industrial companies in the US) will grow nearly four times to the level of 2700 in the 1980s. At this moment “Dow” fluctuated between 700 – 900. Prechter raised then his goal for 3686, but Frost stubbornly remained in his belief, and he was right. “Dow” jumped to the level of 2726 in August 1987, followed by a crash. A few years later, Prechter and Frost had completely different opinions as well, although they interpreted the same theory. Prechter felt that prices of “Dow” would fall below the 1700, but Frost was expecting them to rise over 3000.
“Dow” reached the level of 3000 in July 1990. This example is a typical illustration of different interpretations of market prices in the future, using the same method. A similar difference of opinion are observed in the interpretation of the Dow Theory, market cycles, market valuation and so on.
“I always avoid prophesying beforehand because it is much better to prophesy after the event has already taken place.” – Winston Churchill
The second example was a divergence of opinion as to the level of the interest rate. Merrill Lynch, one of the most authoritative brokerage firm, predicted that the rate will fall to 7% from 9%. At the same time, Prudential Bache also a major brokerage firm, believed that the interest rate will rise to 11%. As a result, Merrill Lynch advised its clients: buy the bonds – if you buy 30-year government bonds for $ 98 you will be able to sell it for $ 128 in a year. The Prudential however felt that bond prices will fall to $ 82 (rate really fell down significantly). Investors, however, had to make decisions themselves.
Past Behavior Predicts Future Performance
The best way to predict the future is to study the past. There is a good chance that your opinions regarding the prices of stocks in the future are more accurate than the opinions of experts. My advice is to read them, but be skeptical. Danger counting on the opinions of experts lies in the fact that sometimes they are right. The basic formula for the success of these people is, “If you can not forecast right. Forecast often”. After preparing fifty forecasts you can always boast of those that have worked and forget about the rest.
“Those who have knowledge, don’t predict. Those who predict, don’t have knowledge.” – Lao Tzu
Let’s look at the forecast of the famous Jeane Dixon. Mrs. Dixon has won fame by predicting the assassination of President John F Kennedy. According to the biography of Jeane Dixon, written by her secretary, Ms. Montgomery, Jeane also predicted the union between China and the Soviets, the discovery of a cure for cancer and many other events that “sell” good in newspapers, and which were not proven by the Scientific Research Committee of Clairvoyance. Forecasts of Jeane Dixon weren’t better than predictions of ordinary man who often guesses.
More Funny Quotes about Predicting the Future:
“Forecasting is the art of saying what will happen, and then explaining why it didn’t! ” – Anonymous
“The best qualification of a prophet is to have a good memory.” – Marquis of Halifax
“Wall Street indices predicted nine out of the last five recessions.” – Paul A. Samuelso
“People don’t realize that we cannot forecast the future. What we can do is have probabilities of what causes what, but that’s as far as we go. And I’ve had a very successful career as a forecaster, starting in 1948 forward. The number of mistakes I have made are just awesome. There is no number large enough to account for that.” – Alan Greenspan
“My interest is in the future because I am going to spend the rest of my life there.” – C.F. Kettering
“The most reliable way to forecast the future is to try to understand the present.” – John Naisbitt
“An economist is an expert who will know tomorrow why the things he predicted yesterday didn’t happen today. ” – Evan Esar
“Prediction is very difficult, especially if it’s about the future.” – Nils Bohr
“Economists have allowed themselves to walk into a trap where we say we can forecast, but no serious economist thinks we can. You don’t expect dentists to be able to forecast how many teeth you’ll have when you’re You expect them to give good advice and fix problems.” – Tim Harford
“An unsophisticated forecaster uses statistics as a drunken man uses lamp-posts – for support rather than for illumination.” – After Andrew Lang
“It is far better to foresee even without certainty than not to foresee at all.” – Henri Poincare
“Prophesy is a good line of business, but it is full of risks.” – Mark Twain
“If you have to forecast, forecast often.” – Edgar Fiedler
“No one can forecast the economy with certainty.” – Jamie Dimon
“Forecasting future events is often like searching for a black cat in an unlit room, that may not even be there.” – Steve Davidson
“I never think of the future, it comes soon enough.” – Albert Einstein
“The best predictor of future performance is past performance” quote tells us that winning traders base their decisions on speculative information obtained from the market and not on forecasts. If the speculation is profitable, then we know when to stop in accordance with the dogma of greed. In the financial world there is no one who would know what will happen in the future. We can predict exactly a sunrise, the tide of the sea, the full moon, etc. because they are recurring phenomena. With less accuracy we can make a weather forecast. As for stock prices, it’s another matter. Dogmas presented here involve money, and the money belongs to human affairs. Stock prices rise and go down under the influence of decisions of millions of investors who think, feel, and who buy or sell them. Human behavior can’t be predicted. So we must remember that the future is never more certain than the present, and speaking about it only makes sense if it implies concrete action in the present. Remember: the best way to predict the future is to look at the past.