My latest Street.com column, "Don’t Look for a Bottom Just Yet" is up at RM. It is loosely based upon Bottom Spotting (Or, yet another way to tell if we’re wrong) from earlier this week.
I never can tell when the subscription only stuff goes wide, but in this case, they released it
Here’s an excerpt:
Readers asked: Isn’t predicting the future a fool’s errand?
"I agree about the folly of forecasting. I look at the markets and various scenarios as a form of quantum physics. We don’t know what’s going to happen, but we can assess the likelihood of comparable outcomes.
In a column last week, I emphasized the importance of expecting to be wrong. The peril of predictions is the tendency to marry your conjectures instead of using them for planning purposes. I know too many managers who stay long or short when a trade goes against them, rather than recognize the new reality. Ned Davis even wrote a book on the subject, "Being Right or Making Money."
But do recognize that everyone makes predictions about the future. When you buy a stock, you are predicting it’s going higher. When you put money into a retirement account, you are making predictions about your own life span, as well as an economic forecast of sorts.
Another way to think about forecasting is to put it into context of risk and reward. Many people carry umbrellas when the weather forecast says it may rain. That’s a risk/reward analysis. We may not know what is going to happen next month or even this afternoon, but we can be cognizant of when risk is higher or lower. I make that analysis based on quantifiable data, such as monetary conditions, market internals and trend. It’s still as much art as it is science, but at least it’s more than just a gut feeling.
You can see the full piece here: