Personal Bias

With no small sense of Schadenfreude did I enjoy a recent compilation of pundit opinion on the just completed US Presidential election. The pundit shaming tumblr page had all the usual suspects from Peggy Noonan to Michael Barone to George Will to the inimitable Frank Lutz all getting the election results spectacularly wrong. This of course is not surprising. Studies show that experts are worse than random at making intelligent and accurate forecasts about anything, but especially about social science disciplines like politics and economics.

Generally, a cabbie in any city of the world will give you a more accurate reading of the political and economic landscape than any talking head on TV. Experts however, are especially toxic when they have a personal bias that clouds their judgement. Yet like the primitive tribes of yesteryear we all love to sit around the fire and listen to our Oracles pontificate on the future. That behavior is so hardwired in us that all of these people whose opinion is worth actually less than nothing make seven figure salaries spouting nonsense throughout the news cycle.

As traders we all fall prey to the same instinct. We love to hear gurus forecast their opinions, most of which is devoid of anything but just simple hunches couched in professional language to give it the air legitimacy. When you look at Financial TV it is nothing but an endless stream of opinion - often very badly expressed opinion at that.

As a member of this nomenklatura I am as guilty as the next guy of making statements that are completely wrong.,But at least I recognize the futility of this process and resist as much as I can at making long term calls. I genuinely have no idea how the market will trade 3 months from now.

So how do you separate wheat from chaff when listening to all that talking head opinion? There is no simple easy answer to that, but one rule that I like to follow does help. Generally, the guy with the facts rather than just opinions is going to be the more accurate forecaster. That’s why the true victor in 2012 was Nate Silver who held steadfastly to his data points and calmly and accurately called the election right demonstrating once again that a data driven approach beats “gut instinct” most of the time.

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