The Purpose(lessness) of Forecasts and Commentary

This is the final time I will post the Berge Report. Here’s why.
Quite often, I receive emails asking, “Did you read so-and-so’s [opinion piece]?”
The answer is NO. Because objectively I know there are two problems, as illustrated in Susan Berge’s confession that Daddy’s indexes don’t work no mo’:

Why has the NYSE ITI remained bearish even as the averages have continued to advance? I’ve been wrestling with this all year. Here’s my conclusion. When my Dad designed these Indexes, we had free markets and people making investment decisions. To a large extent today, we have artificially propped up markets and machines buying and selling. High-frequency traders are day traders on steroids. They don’t care about downside risk because they trade in nanoseconds and don’t hold positions overnight, never mind intermediate or long-term. I have not yet found a way to objectively measure this new factor. However, as long as the Fed plays such a huge role in determining the direction of stock prices, things like money supply growth and interest rates will have to be given greater weight in our Indexes.

There is so much hogwash in this one small paragraph it is pointless to rebut. In response, I wrote, It’s Different This Time (Again):

NO WAY. WTF??? It is not your JOB to do R&D?
How about another reason (among the many reasons I can think of): maybe there was invalid methodology there in the first place. I’m pretty sure in Stan Berge’s day, “analysis” was more like thought experiments, and we know most of these people were not mathematicians or statisticians.  They didn’t even have calculators.

One of my friends said at least she has intellectual honesty, which is true. I dug a little deeper, and discovered that Susan Berge has been busy writing letters to the editor of her hometown paper, lamenting the state of the nation. Red flag!
Since I actually read every last piece of outside research before posting it up for you, I asked myself, is there a reason to read publications when the writer is obviously treading water? Am I better off reading a few research papers instead?

Bunker Mentality

Pete send me these two related articles this morning. First, the survey: U.S. Investors Seem Unaware of Bull Market’s Strong Gains. Then, the table.
Then there are those wrong track polls.
It is very clear to me that what is on the wrong track is the mental status of the respondents. An historic percentage of the population is getting old and depressed, coloring their views. I can think if no good reasons to read dispatches from the bunker.

Desire to Know vs. Making Money

I would even argue that the desire to know the future is detrimental to investment performance.
For example, the NASDAQ closed at a 14-year high today. Apple made a new high today. Yet only twelve trading days ago, everyone thought it was game over for stocks and puked on breach of the 50-day (invalid application of) moving average.
The only thing we learned about the future on July 31 was how confident CNBC was that the long-predicted stock top/crash was upon us by featuring Ron Insana’s Why I’m shorting this market on the home page.
From a sentiment perspective, we all know that it’s NEVER different this time, so as observers of the market, we could surmise from the headline that a short-term bottom was close at hand, since the pundit were so sure about the decline.
Yet since every time IS different, how is a person expected to divine the future? Not only are there no consistently accurate forecasts, they are not even necessary to make money.
Even I am guilty of writing the occasional commentary piece. For example, how does Market Sentiment: Climbing The Wall of Worry help us? Or this: Investor sentiment comes full circle since 2009.
Having been a financial advisor, I do understand the desire of clients to know the future. I could even argue that it’s part of my job to soothe nerves, but remember, just because someone feels better, it doesn’t mean it they made more money or managed risk better.
Speaking for myself, if I had to rely on someone’s subjective judgement, and maybe worse, a bunch of conflicting opinion to make buy and sell decisions, it would stress me to no end. Math and statistics — applied from correct first principles — has made me more money than reading commentary.
For example,

August 11
In our view, last Thursday’s lows did not represent a good intermediate or long-term buying opportunity. Still lower price levels in the averages are likely. The deeper the correction, the better the bottom. With many indicators already on their way to establishing oversold conditions, further weakness will lead to deep oversold conditions, an essential prerequisite for a good bottom.
August 18
The reason for reviewing the 2011 correction is to illustrate the point that corrections are never as neat and clear when they are going on as they are in 20/20 hindsight. The Big Board averages made their highs in late April 2011 and their lows in early October. In-between a lot of things happened that are not captured by simply measuring the peak-to-trough decline in the averages.

On that note, I bid farewell to Susan Berge. There are only so many hours in a day, and only so many days in a life. Best to spend them wisely.