Interesting article. How Do Pundits Never Get It Wrong? Call a 40% Chance Talking heads have learned that forecast covers all outcomes; ‘I just said it was a strong possibility.’ By Rolfe Winkler and Justin Lahart March 10, 2018 What are the chances that readers will make it to the end of this article? About 40%. If you do make it, that prediction will look smart. If you don’t, well, we said the odds were against it. Such is the nature of the 40% rule, a favorite forecasting tactic of Wall Street analysts and other prognosticators trying to make a bold call without being too bold. Former British Prime Minister Tony Blair said last month there’s a 40% chance that Brexit will be reversed; Citigroup Inc. analyst Jim Suva wrote that there’s a 40% chance Apple Inc. buys Netflix Inc.; andNomura Holdings Inc. economist Lewis Alexander said there’s a 40% chance Nafta gets ripped up. The nice thing about 40% is that you never have to say you were wrong, says Peter Tchir, a market strategist at Academy Securities. Say you predict the Dow Jones Industrial Average has a 40% chance of hitting 30000 before year-end. “Get it right and you can say ‘See, I was telling everyone it could happen,’ ” he says. “Get it wrong and you can weasel your way out: ‘I didn’t say it was likely, I just said it was a strong possibility.’ ” With a 24-hour news cycle, outlets from cable channels to newspapers are always looking for an expert to weigh in. If they offer an audacious estimate that will get clicks, all the better. The trend has boosted the industry of analysts and talking heads who predict everything from election outcomes to corporate earnings. A whiff can ding a forecaster’s reputation. Nate Silver became America’s most famous election forecaster when he called all 50 states correctly in the 2012 presidential election. Four years later he was criticized for repeatedly projecting that Donald Trump stood no chance in the Republican primary and for his final pre-vote projection that gave Hillary Clinton a 71% chance of victory. Mr. Silver says he deserves some criticism for his primary projections, but not his general election forecast, which he called “highly informative and useful” since others gave Mr. Trump a smaller chance. To protect their reputations, pundits hedge. They may not provide a date by which a forecast will occur. They often “cluster” forecasts together with other analysts around a “consensus” figure so that everyone will probably be the same amount of wrong. Citigroup’s Mr. Suva forgot to hedge. He put a 40% chance on Apple buying Netflix, but also a 25% chance Apple buys Walt Disney Co. , a 10% chance each it buys one of three videogame makers, and a 5% chance it buys Tesla Inc. That sums to 100%, implying it is mathematically certain Apple buys one of them. A Citigroup spokeswoman said Mr. Suva doesn’t believe a deal for one of those companies is guaranteed. She said the forecast was really a conditional probability, contingent on Apple using its huge cash pile for what she called a “mega deal,” which she said Mr. Suva actually views as less likely than a large stock buyback. The conditional probability wasn’t specified in Mr. Suva’s research note. “Pundits and gurus master the art of going out on a limb without going out on limb,” says Philip Tetlock, a professor at the University of Pennsylvania who has made a career analyzing which people forecast well, and why. One of his pet peeves is how gurus use vague terms like “distinct possibility” instead of percentage odds when they describe probabilities. That makes it easy to wiggle out of, or take credit for a forecast, since it isn’t clear at all what a distinct possibility is. But one drawback of percentage odds, Mr. Tetlock says, is that people are often unclear on what they actually mean. Mr. Silver can relate. Some of his harshest critics took his 71% projection of a Clinton victory as a sure thing that she would win, he says. “You wouldn’t cross the street if there was a 30% chance you’d get hit.” Courageous contrarian calls are the best way forecasters capture the public’s attention, and get television time. New York University Professor Nouriel Roubini was dubbed “Dr. Doom” for correctly predicting the financial crisis. Then in 2010 he projected a 40% chance of a “double-dip recession” in the U.S. It didn’t happen. Mr. Roubini says he doesn’t remember the projection, but that he takes pride in sticking his neck out, as with his latest call that Bitcoin is the biggest bubble in history and will go to zero. “I would not rule out that I’ve committed the sin of the 40% rule,” said Prof. Roubini. “Everybody has done so.” “There’s an aspect of infotainment” that Wall Street forecasters always keep in mind, says John Kilduff, portfolio manager at commodities hedge fund Again Capital. In September 2015 Mr. Kilduff told CNBC viewers that crude oil had a 40% shot at falling to $20 per barrel. Then at $45, oil followed its downward trend before bottoming at $26.21. “You’re always riding the hero-shithead roller coaster,” says Mr. Kilduff, “we all have plenty of haters, and they’re even more visible now with Twitter . ” He noted one correspondent who took a forecast personally. “Hope you lose EVERYTHING [on] your short,” the person wrote in a salty email reviewed by the Journal. The correspondent also called Mr. Kilduff ugly. “The old 40% trick!” recalled Stephen Roach, formerly Morgan Stanley’s chief economist. “A warning of a looming forecast change, a rising risk assessment, a way to cover your rear—or a combination of all three.” Mr. Roach said that by stamping a 40% probability on a possible outlier he could call clients’ attention to shifting winds without changing his underlying forecast. A nonrigorous examination of Mr. Roach’s past forecasts showed he put a 40% chance on two recession predictions in 2002 and 2004, and then another recession projection in 2010. All of those he got wrong, or rather, got right, since he said the odds were against. The 40% rule can be useful for all manner of punditry. British boxer Anthony Joshua speculated in 2015 that underdog Tyson Fury had a 40% shot to beat heavily favored champ Wladimir Klitschko. Mr. Fury won, and now wants to fight Mr. Joshua. A spokesman for Mr. Joshua didn’t respond when asked what chance the boxer would give himself against Mr. Fury. By the way, if you made it this far, we always predicted you might. https://www.wsj.com/articles/how-do-pundits-never-get-it-wrong-call-a-40-chance-1519662425
Personally I find no usefulness in forecasting. Trade entries are easy, exits and trade management are the hard part. ( position size, how long to hold, profit target, add or take off size, when to get out when you know your wrong, etc)
I once tried to forecast what my then girlfriend would say when I put 3 questions to her. The first one was fairly significant - I'm moving to a new place in this nearby town, do you want to move out of your parents' house and move in with me? The second was not so significant but she still said No, and the third one as she put it was "not important". However, when she answered No to the third one, I said I was finishing with her. She said you can't break up with someone for that, its not important enough. Well, apparently it was. I'm not sure what my point is. Unless its that forecasting is pointless even if you're right. Just go ahead and do what you need to do.
This is WHY I do NOT listen to those "experts". LOL I listen to myself, my own analysis, research and experience. I read them for reference to get some ideas, but I don't base my decision on them.
True if your action is going to be a reactionary one anyway, forecasting is not needed in the first place. Feel bad you lost your girlfriend though.
Even if the pundits gave exact percentages for all their predictions, most people still wouldn't truly grasp what the probability percentages mean. When Nate Silver forecast that Donald Trump only had a 29% chance of winning, the general public interpreted that as Nate saying Trump had no chance. Yet if you ask if they could correctly call a coin toss twice in a row, a lot of them would say yes, even though that is only a 25% probability.