The Not So Good, Bad, and Ugly

October 20, 2009 at 8:28 am Leave a comment

There’s a new bounty hunter in town, and it’s not Clint Eastwood from the legendary western film The Good, the Bad and the Ugly. Rather, it’s John Carney from Clusterstock who is keeping the bold bears honest, even though they have received their heads handed to them in this supposed “sucker, bear-market rally.” Perhaps, the bears will ultimately be proven right, but in the mean time, these tape fighters are losing blood by the quart.

Music from what Quentin Tarantino calls the best-directed film of all-time.

I find the existence of accountability sheriffs in the business media world rejuvenating since these roles are sorely lacking. Too often, so-called pundits spout off bold assertive predictions and industry commentators make no effort to review the track records of those prognosticators. I commend many of the industry practitioners for putting their necks out on the line, but viewers need some sort of historical batting average to judge the odds of forecast reliability. The game of predictions is no science, but there can be some objective responsibility instituted by media researchers and commentators. Media outlets provide carte blanche to predictors without doing homework on the guests. Unfortunately, time-strapped viewers have little to no time to research commentator track records.

Typically how it works, especially in the massively fragmented media world (which I admittedly participate in on a relatively small scale), you have countless voices making extreme predictions across the broad economic and financial globe. Eventually, some forecasts will be right, including those correct for the wrong reasons – just think back to your statistics class where you learned about the “law of large numbers” or the family living room where the broken clock provides correct time twice a day (see my other article on bold predictions). Since any human likes to be associated with greatness, these future-seers are strolled into media studios, put on a pedestal and asked to share their brilliance, all without critically reviewing the past record of the purported expert.

Rather than make bold predictions about market direction, which is virtually impossible to predict with accuracy on a sustainable basis, I choose to look at the market with a perspective similar to the greats. For example, Peter Lynch who earned +29% per year from 1977 – 1990 (achieving about double the market return) says it’s best to “assume the market is going nowhere and invest accordingly.” Realizing your fallibility is important also. Even with Lynch’s incredible track record, he knows “you’re terrific in this business [if] you’re right six times out of 10.” According to Lynch fretting about the market direction is also useless: “If you spend more than 14 minutes a year worrying about the market, you’ve wasted 12 minutes.” Interestingly, even Warren Buffett, arguably the greatest investor of all-time, never comments on short-term directions of the market, despite being hailed as the “Oracle of Omaha.”

Predictions and forecasts will never go away, but I will sleep better at night knowing sheriffs like John Carney are keeping track of the good, the bad and the ugly. Who knows, maybe he’ll even take me on as a deputy.

View John Carney’s Full Article

Wade W. Slome, CFA, CFP®

Plan. Invest. Prosper.

DISCLOSURE: No information accessed through the Investing Caffeine (IC) website constitutes investment, financial, legal, tax or other advice nor is to be relied on in making an investment or other decision. Sidoxia Capital Management (SCM) and some of its clients own certain exchange traded funds, and at the time of publishing had no direct positions in BRKA/B. Please read disclosure language on IC “Contact” page.

Entry filed under: Financial Markets. Tags: , , , , , , .

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