Trader’s Narrative

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: