Forecasting is difficult, especially of the future

By DAVID MOON, Moon Capital Management
July 22, 2007

Nostradamus was a French physician and, some say, prophet, whose 16th century writings continue to be a source of fascination and television docudramas today.

His believers claim that his quatrains (verses) foretold events that happened ' and continue to happen ' hundreds of years later.

Nostradamus scholars, for example, point to quatrain XII 52, written about 1555 A.D., as detailed prophesy of the 9/11 attacks:

Two bodies, one head, fields divided in two,
And then to reply to four unheard ones:
Little ones for great ones, clear evel for them,
Lightning at the tower of Aiguesmortes, worse for "Eussouis"

The two bodies are the twin towers. The four unheard ones are the four airliners. The little ones were the passengers on United Airlines flight 93 who overtook the terrorists and diverted the plane from another attack. 'Aiguesmortes' looks like a combination of the French words for 'sharp' and 'death,' referring to the box cutters used by the hijackers. And 'Eussouis' is clearly a disguised phonetic version of the term 'USA.'

Isn't that perfectly clear?

Don't laugh, at least not too loudly. In the prediction game, these sorts of contrived interpretations are fairly commonplace. I once read a research report that said 'interest rates to rise, if they don't fall.'

I'm willing to bet that the interest-rate prediction came true. I'm also willing to bet that the author of that out-on-a-limb forecast later reminded his readers or customers of the accuracy of his rate prediction.

I wonder if he also reminded them of the actual language he used in making his detailed forecast.

A writer who uses unfathomable words like 'Eussouis' can interpret ex post facto his writings and presentations however he chooses.

But surely it must be tougher, if not impossible, to do that if using something as precise as numbers carried to four decimal places.

Wrong.

Last week I saw two instances of misleading and intentionally misrepresented institutional investment performance. In both cases, the reports were extensive, detailed, impressive, persuasive ' and misleading.

Don't worry about culpability. That's a waste of time. There are enough loopholes ' and financial regulators of varying (in)competence ' that if a firm wants to pick the five best-performing stocks or mutual funds from the last five years and pretend it actually owned them for its clients during that period, it can figure out a way to do it.

You shouldn't blame the toy company if the super-rocket pocket fisherman doesn't automatically catch fish exactly like it does in the commercials. Use your own reason and brain. Ask questions. Who else owns a nuclear-powered fishing rod? Have they emptied the lake of fish?

As Yogi Berra is supposed to have said, 'Predicting is hard, especially when it involves the future.' I've seen plenty of people make lots of money or become famous as predictors. But few actually made their fortunes or built great businesses on the success of their predictions.

Even Nostradamus had to die before selling a lot of books.

David Moon is president of Moon Capital Management, a Knoxville-based investment management firm. This article originally appeared in the News Sentinel (Knoxville, TN).

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