Forecasting is hard, forecasting for stocks is even harder
But let's do it anyways
The market is forward looking. But the future is basically impossible to predict. So, what does that mean for prices?
It means prices are going to be volatile! Think of the average news day - how many stories pop up that feel like they could be smoke of a bigger fire? So many.
Some of those news stories (perhaps like ones about a strange “flu” in Wuhan that doctors are trying to diagnose) turn out to be smoke of a massive conflagration that is about change the course history. And, when there are active big events that change the course of history, it tends to affect stock prices.
Obviously, markets still exist and stocks are traded, so despite potential flaws or problems (theoretical or otherwise) that come from volatility around our assessment of emerging events and the potential impact they might have on the future, the financial world still keeps turning. The game still gets played even if the rules are imperfect and mistakes are made.
In actuality, the chaos of all this is what makes the game fun! If everyone knew what was going to happen or if forecasting stock prices was easy, we’d all be rich and bored, living in a world of perfect certainty with complete foresight of the future just acting out the steps of our pre-determined lives. Uncertainty and complexity create a lot of room for interpretation and opinion, the so-called “art” side of things, where the game is especially enjoyable.
If we accept that we are all idiots when it comes to the future and we want to do analysis of stocks (which are heavily dependent on the future) and we can set aside our ego (because we are always going to be wrong), then we can do a lot of cool analysis that verges more into the “art” side of things that bigger, more professional institutions are afraid of doing because they hate being wrong and looking dumb.
So, in the same way the future direction of this newsletter’s analysis is moving towards forecasting, it will continue to expand analysis for stocks and forward-looking metrics on stocks despite the fact that this isn’t really published in the industry as much as historical analysis since, again, forecasts almost always end up being wrong.
Remember though, wrong doesn’t mean it isn’t useful or informative. It’s all part of developing more tools so that we can continue to build a more powerful analytical toolkit.
If we have a better toolkit, we can make better decisions. If we make better decisions on stock prices, we will make more money. If we make more money…then I guess we can all retire and go be bored.
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