Last summer my family was visiting extended family in Idaho. It was a Saturday night and we were exhausted. So we decided to order pizza and have it delivered to the home. The pizza place gave us an estimated delivery time…which came and went. After waiting a while longer, my sister-in-law called back to find out what was up with the order. They explained it was very high volume that night, but the pizza was coming out of the oven at that very moment and told us it would be 20 minutes. It was 8pm.When she related the conversation, I said I didn’t think they had even started on the pizza. I told her, and the rest of the family, the pizza would arrive at 8:43pm…just picking a number out of the air. Others made similar guesses. As we watched TV, and it went to commercial, I noticed it was 8:42pm. I told everyone the pizza would be here in one minute and that I was so sure, that I was going to open the door in anticipation. Then, as I opened the door, as surprising to me as to anyone else, the pizza guy was 4 steps away…just about to ring the doorbell. I couldn’t believe it. It was 8:43pm on the nose. I had accurately predicted it.
My son recently reminded me of this story, and now I am known as the guy who can predict what time things will happen in the future because I got lucky. Now I get asked all the time. We tend to do that as a society. Someone gets lucky, and we want them to pick our lottery numbers for us. We confuse luck with foresight.
And this commonly happens in the investment realm.
The Stock Market Prophet
We are bombarded every day with people making predictions regarding the stock market. And some of them are right. That is the nature of probability. Do something enough times and once in a while the unexpected or extraordinary will happen. The problem is we tend to only hear about the “winners”. The same thing happens in casinos.
You walk through a casino floor and you hear Ding Ding Ding Ding Ding. Your mind is thinking, “Wow, there are a lot of winners. I better get in on this.” What noise does a slot machine make when it loses…which occurs the majority of the time? Nothing…just like the expert prediction that was wrong again. We don’t notice because we don’t hear it.
It’s important to understand there is a lot of skill when it comes to investing, but skill only presents itself over long periods of time – and the greatest investor skills are patience, persistence and conviction. When it comes to predicting short-term outcomes, it’s all luck. So if someone gets it right, or gets a few right in a row, don’t be surprised. Statistics says it is bound to happen anyway. A correct prediction is not indicative of a person’s ability to divine the future.
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