‘It’s Kind of Amusing How Terrible Forecasts Are’

On this episode of The Long View, Barry Ritholtz, author, podcaster, and co-founder, chairman, and chief investment officer of Ritholtz Wealth Management, breaks down how saying “I don’t know” can be a superpower.

Here are a few excerpts from Ritholtz’s conversation with Morningstar’s Christine Benz and Amy Arnott.

Why People Gravitate Toward Market Forecasts

Amy Arnott: You’ve written extensively about the fact that nobody knows anything, and you go through a bunch of examples in the book about how this applies to different areas like movies, music, television, economics, policy, market trends, etc. But why do you think people still latch onto predictions and kind of gravitate toward experts who make forecasts?

Barry Ritholtz: So, there’s a couple of reasons. People are very unhappy with the general concept that the universe is somewhat random. And frequently our expectations are derailed by wholly unanticipated events. Right? So, my favorite few examples: Nobody had in their 2020 forecast “a global pandemic is going to shut the economy.” Nobody had in their 2022 forecast “Russia is going to invade Ukraine” and “oil is going to shockingly come down in price.” I’m sorry, that was ’21, ’22, I don’t remember which year, or heading into 2022, “the fastest rate-hiking cycle that’s going to lead to negative double-digit returns for stocks and bonds.”

Like, all these events happen, and even some events that are sort of anticipated, like the Fed hiking cycle or the Russian invasion of Ukraine, they just derail our hopes and dreams somewhat randomly. So, there’s a tendency to want some form of certainty. We are social animals. We are primates that evolved in a group. So, we want a strong leader who’s confident and can tell us what’s going to happen and keep us safe. And in fact, the academic studies show us a couple of shocking things about forecasters. […]

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