The folly of forecssting

“It’s tough to make predictions, especially about the future” -  Niels Bohr.

"Those who have knowledge, don't predict. Those who predict, don't have knowledge", Lao Tzu, 6th Century BC Chinese Poet

As someone who enjoyed trying to make market predictions (‘trying’ being the operative word), I just wonder how much time, effort and energy is wasted in what Nassim Taleb refers to in ‘The Black Swan’ as the "the scandal of prediction". Taleb goes onto to talk about those engaged in prediction as suffering "epistemic arrogance" and "self delusion", and in classic Teleb style, he calls these experts “people who do not know what they do not know".

In his excellent ‘Little book of Behavioural Investing’ James Montier talks about those analysts who try to predict the target price of stocks, noting that not only was the average price of their predictions often way off the mark, but in the years from 2000 to 2008 the analysts only managed to actually predict direction right on four occasions out of a possible nine. 

I omce read an article from Louis Gave of Gavekal research, ‘According to a 2002 IMF study, out of 74 identified episodes of recession in different countries, only four had been correctly predicted by econometric forecasts published just three months prior the recession year - and in two-thirds of cases, consensus economists had failed to 'forecast' the recession even four months after it had started."

Finding Value v Predicting Markets.
In my own trading career. (1986 to 2009), I spent many years trying to predict markets. - I became admitdely very good at finding value. That is not the same as prediction. Finding value, is identifying opportunities whihc may be underpriced or undervalued, or which have a favourbale risk-reward structure which fits in with your overall trading strategy. many people confuse 'finding value', with 'predicitng market direction'.   

A trader's job is to find value and then monetise that value. - 2 different jobs in themsleves. A traders job i not to predict where the market is going. Analysts do that, som ebetter than others. 

When I traded often I may feel the market is going higher. - I might share this with colleagues or a manager. Once my manager came and commended me for a good call. he then asked how much i made from it. - feeling slightly embarresed, I said nothing. He asked why. I said the risk-reward set-up at no point suited me.. There was no value for me in ging long, I didnt have a stop level I was comfotable with, and so I missed the move. 

However, on another occasions, the (almost) the opposite happened. I said I felt th emarket was heading higher, but without a strong convition. That week the market dropped sharply. - He I replid nothing, i woudl predict the maket is i sometimes,