Viewpoint of ‘Cautiously Optimistic’ is Useless

I find it interesting that a lot of market pundits will state that they are “cautiously optimistic” about the future. It sounds nice, but if you take a moment to think about it, it is simply another way for strategies and prognosticators to always be correct.

The Flaw of Predictions

Wall Street “experts” are awful at predicting the future. Actually, everyone is horrible at predicting the future because the future, by definition, is unpredictable. The problem is that Wall Street “experts” pretend to know. Even individuals who have access to comprehensive material, non-public information (such as the Fed) do not know what will happen.

Why are “experts” not fired? Studies show they are wrong as often as they are correct with their predictions. Because their job is not to be correct. It is to sound smart. To sound convincing. And get notoriety for the firm. That is why market “experts”, with some of the worst track records have some of the longest tenures at firms.

Philip Tetlock, the author of a study of over 80,000 predictions by profession prognosticators, came to the following conclusion:

“Ironically, the more famous the expert, the less accurate his or her predictions tended to be.”

Playing it Safe

“Experts” rationalize their mistakes with evidence of how something surprising or unexpected happened. That is a joke. Of course something surprising or unexpected will happen – that is life. But they treat it as if something unpredictable occurred. Correct! The future is not predictable. Only they are playing in a space where they pretend they can divine the future.

Recently some “experts” have been fine tuning their message so they cannot be wrong with their prediction. Some will give a prediction with no time frame…they can never be wrong. And others will use the words, “cautiously optimistic.” Use those words with no mention of timing and you will always be correct.

Wall Street Doublespeak

Let’s break it down. What does “cautiously optimistic” mean? Well, it means that they are cautious about the future…rather than what? Reckless? Negligent? Could you imagine a talking head say that they are “recklessly and negligently optimistic?” Using the word cautious sounds a lot better; more responsible.

And if they are cautious, that is their out. If things turn out very badly, and they are called out on their previously optimistic viewpoint, they could always say that they were cautious about being optimistic…and therefore should not be held accountable.

Actually, they could be correct in their statement even if goes against them. They could always say they were “cautious” in the near term because they thought things would be bad for a while, but are still optimistic because at some point things will get better. Without a stated time frame, the comment of “cautiously optimistic” ensures that the strategist is correct no matter what happens. And that is why it may sound nice, but is utterly useless.


© 2022 The Behavioral Finance Network