FQ.07.44: Favorite Quote for This Week

Do not waste your time trying to fight forecasters, stock analysts, economists, and social scientists, except to play pranks on them...  If you hear a “prominent” economist using the word equilibrium or normal distribution, do not argue with him; just ignore him, or try to put a rat down his shirt.
—Nassim Nicholas Taleb, in his book The Black Swan

Comments

[Bob]

Well, you can add "price point" to the list too. Whatever happened to just "price"? As in:

How much for this rug?

Answer: The price point is $70.

[drubato]

-- brings to mind the classic 'Paradox of the Gypsy Fortune-Teller':

{... if a Gypsy Fortune-Teller can really predict the future by palm-reading, crystal-ball, etc. -- why ain't she already rich ... and not forced to peddle "advice" to penny ante customers ??}

Much the same with media business/financial & political pundits/advsiors -- if they're so smart, how come they ain't rich & retired to a life of luxury ?

Ability to issue generally reliable predictions of future economic & political events {...even on a small scale} would command huge personal profits --- but these guys still seem to have to get-up & go to work each day, like us ordinary folk.

[Bob]

Drubato,

One can get a resonable handle on developing trends. The problem is that it it near impossible to know the beginning of the trend because it is not a trend until it is well underway. Nevertheless, those that bought Dell stock early did very well on that trend. If you recognized that the trend had an ending you did even better.

I guess the book is about randomness and chance. There is a lot of that though there is information available that we can use to maybe not predict the future (depends on how far one goes out) but to make better choices.

[A Tanatar]

This is largely a BS argument. Statistics is a very valid science, it is very applied to the real world and you can really get rich using it. The trick is to understand and keep head cool, since it is the model changes and timing that largely kill all trading.

Why don't forecasters get rich? Eventially they do, but just think about how much money it takes to be able to do intraday trades without feeling transaction costs and to be able to safely absorb the risk. Essentially, even if you get everything right trendwise, you can get timing wrong (my friend lost most of his trading money because of the wrong timing). Eventually, to be a reasonably sound better, you need roughly speaking a couple of millions in a trading account and free access to things like Bloomberg. Guess what? Even with tens of millions you can make more in trading bonuses for someone else. It is much safer as well. So, to really start "getting rich" you need tens, if not hundreds of millions, at which point you either qualify as a "smart investor" or "Wall Street guru", just like Soros did.

[Tim Lundeen]

I think the comments miss the point of this quote.

In the real world, you can't predict how long "equilibrium" will last, even if you could tell that there was one.

In the real world, most distributions are not normal, and people trying to get rich by making this assumption will go broke in the long run (the typical distribution is a power law).

People who think they know how the world works and have these beliefs will be found saying "how could I predict that?" at various points in their lives.

This is a great book, btw :-)

[Aaron]

Bob,

In trade, we use the word "price point" to refer to certain retail prices that are "sweet", i.e. can we get this product to retail at the 49.99 price point?

Because that's actually different from the price of the product at wholesale, etc.

[Bob]

Aaron,

Thank-you. I've noticed that price point and sweet spot are showing up everywhere, though. Too much jargon for me.