Experts Are Hazardous To Your Financial Health
Published August 2nd, 2006 in Trading Tags: crash, crashes, Didier Sornette, experts, investing, Nassim Taleb, prediction, S&P 500, stock market, trading.Do you remember Didier Sornette? He is the visiting UCLA professor who became a bit of a celebrity within financial circles a few years back. Sornette co-authored a paper and then a book explaining Why Stock Markets Crash. He came up with a very sophisticated model which tried to not only explain the market but predict it years in advance.
Since at the time his model was bearish, Sornette quickly became the favourite interview subject of the perma-bears. He wasn’t right of course since the market went up instead of down.
Had he been right though, you can bet he would have become a sudden celebrity, sold millions of his dry academic book, been interviewed in Barron’s, launched a hedge fund, etc.
This is what he said in an interview on March 2003 just as the market was about to launch into a multi-year cyclical bull run:
…we predicted that the stock market will go up until the first to the second quarter of 2003 and will then start a long descend until around the end of the first semester of 2004.
And here is the graph illustrating this prediction:
At the beginning of 2006 the S&P 500 was at 1270 - approximately 500 points away from Sornette’s predicton.
Now, I’m not dredging this up in order to beat up on a well meaning professor of geophysics. My point is that listening to so-called ‘experts’ is financially hazardous to your financial health. And that includes anyone on TV, radio, or dare I say it? even a blog.
Be independant and seek understanding - from that money and success will follow. There are no shortcuts in trading or in life.
If you’re interested to learn more about experts and their predictions, listen to this lecture by Nassim Taleb:
crash, crashes, Didier Sornette, experts, investing, Nassim Taleb, prediction, S&P 500, stock market, trading
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4 Responses to “Experts Are Hazardous To Your Financial Health”
- 1 Pingback on Dec 8th, 2007 at 2:07 pm
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I imagined that he has a new chart now, and when I went to his site at the link you gave, sure enough… There you can see a chart with 20 possible scenarios on it. It turns out the S&P will either drift upwards or plummet to the 2002 lows. Good to know. I’ll just factor that into my trading plans and… d’oh!
I really wanted something saying, yeah I was wrong, and here’s what I learned about that. No dice. Instead, at the bottom of the page he says the charts are updated monthly. So, it will basically look like he’s never wrong unless you dig up an old chart, like the one here.
Well said. As they say : If You Meet the Buddha on the Road, Kill Him! Don’t believe what some one says, no matter how holy they are, just because they say it.
German philosopher Hegel once said: “If the facts do not fit the theory, so much the worse for the facts.” Sadly the “experts” very often get so attached to a model or theory that are willing to sacrifice the facts.
This reminds me the story of Persian folk character Mullah Nasruddin who was lying in bed very ill. The doctor arrives, examines the moribund man and with a sigh says to Mullah’s wife, “I’m sorry but Mullah is dead.” In this moment Mullah Nasruddin opens his eyes, lifts his head and says to his wife, “No dear, I’m alive.” In this moment Mullah’s wife slaps him and says, “Shut your mouth, you stupid man! The doctor knows best!”