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The Chairman
Victor Niederhoffer

11/15/2004
Patting Yourself on the Back 

Harry Browne has an excellent chapter in "Why the Best Laid Investment Plans  Usually go Wrong" on self-administered evaluations by forecasters.

My favorite passage is suitably documented in Ed Spec. (p. 69)... "He usually cites one or two forecasts that seem now to have been especially shrewd. But, of course, you expect him to do that. It's when he cites some that turned out to  be wrong that you're won over. You can see that he's being more than open and honest. By treating a near-miss as "wrong," he demonstrates that his talent and  even his standards tower for above yours and mine. He said: 'Among the losers I was a bit too optimistic about the high in gold (said 450 but it was only 406). Ditto silver: I said 11.50 high but it was only a 10.85 high.' ...Any man who's wrong only 13% of the time and who's that close when he's wrong, must be a genius. [But] I've never found him to be even 40% right.... And he almost never repeats last years forecasts accurately. For example... 'when he made the forecasts of 450-500' gold it was already at 406, its high for the year."

Turning to the present day, I counted the following uses on Google:

"as predicted" -- 735,000

"as I predicted" -- 38,300

"as predicted," NYSE -- 6,200

"as I predicted," NYSE -- 181.

Thus, only 1% of the uses of the hubristic self-evaluation appeared on NYSE. Another 1% appeared vis-a-vis Nasdaq.

Here are a few example: "The results are as predicted. Consolidated figures before audit first quarter 2001."

"If, as predicted, copper prices",

"Now, as I predicted, monetary aggregates are slowing down.."

"They are rising as I predicted."

"The Asia crisis has, as I predicted, dragged down the value of big name stocks."

"As I predicted, two weeks ago, it looks likely that Nokia will fail in its bid to acquire control over Symbian."

"This week the Fed cut rates by 0.25% as I predicted."

"As I predicted several times last year, long term rates can go..."

oh and yes,

"as I predicted, those lovable misfits from Cyberfast Systems...."

It would be interesting to prepare a typology of uses of  "as predicted" and its variants with the subtle points that aggrandize and feign humility attached. But one gets the point.

Too often, very fallible forecasters and investors like to pat themselves on the back with far too many "as I predicteds" and its variants. It's unseemly, bad sportsmanship, bad science, and hubristic. For your good and ours, please let it cease. Let us instead follow the example of our spiritual leader, B. Franklin, who to make himself more humble used such phrases as "I conceive" or "I apprehend" rather than "as predicted" to weed out this vice.

11/15/04 Philip McDonnell Responds: In the vain hope that I might find one of my failed predictions I Googled the phrase: "contrary to prediction" NYSE , and received only 10 hits. Compared to the Chair's searches the number is strikingly low.

It would seem that almost no one wants to memorialize their own failed prediction. Reviewing the actual hits themselves, most dealt with corporate governance issues and in fact didn't refer to failed market predictions at all. Only one reference was an academic paper revealing that in aggregate security analyst's predictions were "unrelated or negatively related to recommendations". Who knew?

In any event even this one lonely relevant hit clearly isn't a case of the analyst's self admission of performance failure.

11/15/04 Yishen Kuik Found:

Some google results inspired by Dr McDonnell,

"as we predicted" 20,500 hits vs "contrary to our prediction" 793 hits "contrary to our predictions" 610 hits

control ratio : 15 (rounded to nearest integer)

"as we predicted" & "nyse" 393 hits vs "contrary to our prediction" & "nyse" 22 hits "contrary to our predictions" & "nyse" 4 hits

nyse ratio : 15

"as we predicted" & "futures" 397 hits vs "contrary to our prediction" & "futures" 17 hits "contrary to our predictions" & "futures" 9 hits

futures ratio : 15

"as we predicted" & "OTC" 151 hits vs "contrary to our prediction" & "OTC" 4 hits "contrary to our predictions" & "OTC" 4 hits

OTC ratio : 19

"as we predicted" & "nasdaq" 579 hits vs "contrary to our prediction" & "nasdaq" 14 hits "contrary to our predictions" & "nasdaq" 4 hits

nasdaq ratio : 32

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