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Archive for December, 2008

Scott Adams on survivor bias

Still, there are plenty of civilian investors who have done well buying value stocks and holding for the long run. But wouldn’t you expect a wide distribution of luck in any gambling arena? If every investor picked stocks entirely randomly, you would still produce a good number of Warren Buffetts entirely by chance. And our brains are wired to assume those winners had the secret formula for investing.

Mr Adams modest proposal for overhauling stock investing is here.

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One of my least favorite parts of the tech business is the army of predictors of future Apple products. It’s a great game because anyone can play from professional analyst firm, to financial news reporters or random bloggers and since there are so many people playing, the game is rife with survivor bias.  So how do you play? Here’s some tips for making “predictions” about future products:

  • The vaguer the better and don’t forget to pepper your prognostications with weasel language like “sometime in the first half of 2009” or broad categories of products  like “netbooks”.
  • Don’t have a source for this info? Make one up. Or don’t – just hypothesize about how it “makes sense based on the market”.
  • Use other wild speculation as a primary source – it’s the wisdom of crowds!

Once Apple makes (or doesn’t make) an announcement, determine if you won. With so many people playing, just by random chance someone will “predict” what’s going on which will only make your future predictions that much more “valuable”. But what if you weren’t right?

  • It depends on what the meaning of is is: If you did things right you can fudge a vague prediction into the win column by talking about generalities or redefining your terms after the fact. Try squinting.
  • Blame the victim: They should have produced this product so they were wrong or it wasn’t ready in time. This is a science man!
  • Better luck next time: Hey, nobody is right all the time but if you play for long enough, you can appear to be!

This really works for any kind of prediction and with the end of the year fast approaching, it’s time to make those 2009 predictions and weasel around those 2008 ones!

For more on this topic, check out Nassim Taleb on the Scandal of Prediction.

UPDATE: Brad Feld seems to feel similarly:

This has been one of my pet peeves for 20+ years.  For a while I managed to ignore them completely.  At some point I started getting asked for my predictions and succumbed to my ego for a few years and participated in the prediction folly.  At some point I realized that there was zero correlation between my predictions and reality and that by participating, I was merely helping perpetuate this silliness.

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