Awesome Forecasts and the Unknowable Future Back in late 2013 I wrote a piece on human nature which was in part inspired by the bullish exuberance exhibited by a MarketWatch article predicting the DJIA at 20,000 in the near term future. Yesterday afternoon, a bit over three years later, that prediction actually became reality and I’m sure the author of that article as well as many other like minded traders popped some champagne in celebration of their awesome ability to predict the future. Now don’t get me wrong, I’m happy for those guys and for the Dow Jones. Assuming of course that everyone involved actually put their money where their mouth was back then – which ever few do. And that in essence was the underlying message of my post. In yesterday’s update I briefly touched on hindsight bias and how we all have a knack for bending the past in our respective favor. Nobody wants to look stupid after all. And in hindsight, all of us would have liked to have bought the S&P 500 at 667 in 2008 and then traded it all the way up to just below 2300 today. A trader from the (near) future. Image via tumblr.com - Click to enlarge Except of course that we didn’t (please raise your hand if you did).
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Awesome Forecasts and the Unknowable FutureBack in late 2013 I wrote a piece on human nature which was in part inspired by the bullish exuberance exhibited by a MarketWatch article predicting the DJIA at 20,000 in the near term future. Yesterday afternoon, a bit over three years later, that prediction actually became reality and I’m sure the author of that article as well as many other like minded traders popped some champagne in celebration of their awesome ability to predict the future. Now don’t get me wrong, I’m happy for those guys and for the Dow Jones. Assuming of course that everyone involved actually put their money where their mouth was back then – which ever few do. And that in essence was the underlying message of my post. In yesterday’s update I briefly touched on hindsight bias and how we all have a knack for bending the past in our respective favor. Nobody wants to look stupid after all. And in hindsight, all of us would have liked to have bought the S&P 500 at 667 in 2008 and then traded it all the way up to just below 2300 today. |
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Except of course that we didn’t (please raise your hand if you did). And that is quite a humbling lesson to learn in our ongoing quest to obtain riches from market participants who happen to disagree with us. It’s not that we didn’t foresee this event, actually many people probably did.
It is about how difficult it is to actually translate such information or ideas into profits. Back in 2008, as well as in 2013, there was no way of truly knowing where the DJIA or the S&P 500 would be trading all those years later. So what makes anyone think they know what the future holds – today? Over the eight plus years since the launch of the Evil Speculator trading blog, we have seen markets change, regulations change, and even the way we trade change (mainly due to mobile technology). We now compete with high frequency trading robots executing dozens of trades within nanoseconds. We even have to contend with online social media these days, which have the power to amplify a rumor into a market slide within mere minutes. If you think that predicting the level of the DJIA over the next week is difficult, then attempting to predict what may transpire several years down the line is not just foolish but borders on insanity. |
S&P 500 Index, Monthly |
Welcome to the FutureThe other day my wife sent me an article she had gleaned from her Kurzweil mailing list. Quite frankly, it gave me the chills. Apparently our esteemed EU leaders in Brussels have decided that it would be a great idea to introduce laws specific to robots that could give them civil rights regulations of their own, and set limits on how many human jobs they would be permitted to replace. |
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Not only may I be out of work sometime around 2025, but slapping my toaster for burning my slice of wheat may get me into legal trouble, at least if the EU has its way. The latter is of course a completely different story, as the future of the European Union is looking dimmer by the day. So perhaps it won’t come to this after all.
Instead of hover boards and flying cars we’ll be dealing with moody entitled hyper intelligent robots who will be able to perfectly learn a language or learn a trade in 15 minutes instead of 15 years. And they may have rights on top of all the obligatory regulations. A brave new world indeed! Maybe I can train one of them to run my blog and move my crusty butt to Aruba. Its jokes may be a bit stilted at first, but I’m sure version 2.0 will have that fixed in no time. Unless of course the damn thing is made in Germany. But all kidding aside, have any of you considered the impact of machine learning and artificial intelligence to our own immediate reality as traders? I’m not talking in perhaps ten or twenty years from now, but perhaps in three to five. As a matter of fact, I started to dabble with various aspects of machine learning in 2014 and what I found out after expending much time and effort was that it wasn’t ready for prime time just yet. But that can change quickly, especially if you throw advanced artificial intelligence and cloud computing into the mix. With AI we are talking about the potential of a semi-conscious intelligence which may soon not only exceed the realms of human intelligence and reasoning but keep growing from there – exponentially. Ray Kurzweil once called that moment in time ‘the singularity’ and it appears as though it is quickly approaching. Or perhaps it already has come and gone deep down in some government sponsored AI laboratory. Conclusion – Change will Keep AcceleratingThis means of course that the future not only remains absolutely unpredictable, but that the pace of change is going to keep accelerating. Mind, that doesn’t mean that technology will evolve on a linear or exponential curve. There may be setbacks triggered by wars and social chaos. Clearly though, the only reliable feature of life in the future will continue to be change itself. Good luck trying to predict what it will look like. Or the financial markets for that matter. This article was penned by The Mole and has originally appeared at the Evil Speculator. This version is lightly edited by PT. |
Chart by: BigCharts
Chart and image captions by PT
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