Cracks in the Crystal Ball

People tend to think that predicting the markets is possible … even though they realize that predicting anything else is not.

 

 

Prediction Addiction

Related to the below topic on how we remember PAST events … is our tendency to want to make predictions about FUTURE events.

Nobody, least of all me, can know the future. Opinion does not count. However, our brains are wired where we get chemicals and hormones flowing in our brains when we make predictions. Just watch how those anticipating the final roll of dice or roulette wheel. This is how gambling may become addictive. A similar phenomenon may occur in some people about predictions.  It may not be addictive, but it is something most people like to do.

As you know, I prefer to deal in the facts as we know them today without extrapolating how a good event, or a bad event, may turn out. There are methods to make adjustments when the time comes based on the facts as they are known at that time.

What we should keep in mind is isolating events from systemic problems. Sometimes events may expose problems in the system (like peaking housing prices in 2005 (event) and price declines in 2006 (event) triggering people slowing house purchases (event) and defaulting on mortgage payments (event) exposing faulty assumptions in the mortgage and banking processes (system).

We need to see how events unfold is the moral of the story and be able to distinguish between events and system problems (not easy to do nor not really necessary to making prudent decisions). Having thought out processes to deal with unfolding events is part of the planning process and how to be prudent. Although making predictions is fun for our brains, we need to make decisions based on today’s facts rather than extrapolating a prediction.

Solution? Stay diversified (and save predictions for harmless activities like sports (that you don’t bet on)).

Only this way can we separate fears from irrational actions.

Here’s another author’s take on how to cure prediction addiction and offers an antidote … highlighted by me for main points …

About Larry Frank, Sr.

Larry R Frank Sr., MBA, CFP®, is an experienced financial advisor and a published author on Retirement Planning Research. Have a financial question? Click Here to Ask Larry

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Trackbacks/Pingbacks

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