In his New Yorker article, Everybody’s an Expert. Putting predictions to the test. Louis Menand noted, “that people who make prediction their business—people who appear as experts on television, get quoted in newspaper articles, advise governments and businesses, and participate in punditry roundtables—are no better than the rest of us”.

Unfortunately, the decades-long research of Philip Tetlock backs this claim up.

Why are financial forecasters, even famous ones, so bad at their job?

Here are three driving forces that have left us in this mess.

1. There is no accountability.

The “experts” that predicted housing prices would continue to rise in 2007 are still on TV making bold predictions about today’s housing market. The pundits that were sure there were WMDs in Iraq are still giving advice on global affairs.

Worse yet, the viewer is rarely, if ever, informed of the expert’s track record.

2. Entertaining experts get air time and clicks.

The skills required to be entertaining on TV have little to do with the skills needed to be a great forecaster.

We only have so much cognitive bandwidth, talent, and time. If a forecaster is dedicating some of those precious resources to being entertaining, they are likely going to make worse predictions than someone who focuses on forecasting alone.

If your financial advisor is really funny, you might want to look for a new one.

3. Pundits are incentivized to make vague predictions.

A classic example: when the King of Lydia consulted the Oracle at Delphi, the priestess told him that a great nation would fall if he crossed the Persian border. The king assumed that the great nation to fall would be Persia and crossed the border. Unfortunately for him, he was defeated.

Was the Oracle of Delphi, correct? Yes, a great nation fell. Was the Oracle’s prediction helpful? Not in the least.

A modern version of this may go something like this, “Oil stocks will go up over the next few months unless there is an international incident”.

The problem here: what qualifies as an ‘international incident’?

How do you find the signal in all the noise?

At Shot Caller, we believe the best thing you can do is keep track of the predictions that are made by the financial experts you follow. If you don’t have time for that, we can help.

  Zack Prager, Co-founder, Shot Caller