You get a lot of attention if you shout out things like “The stock market is about to collapse”, or “The US dollar crash is just around the corner”, or “The housing market slump is about to unfold”. But from the viewpoint of sound economics, making these kinds of predictions is quite impossible. Putting probabilities to certain outcomes – such as “I assign a probability of 30 per cent that the stock market collapses in 2018” – might be fashionable among forecasters, but it certainly does not do the trick or make things any better.
Some Can
To be sure: One cannot, and should not, dismiss the idea that there might be people out there who have the ability to forecast events happening in the future correctly on a sustained basis. For instance, a successful entrepreneur belongs to this very group. He or she comes up with products people want to buy going forward, and they sell these products at prices which exceed production costs. They are also in a position to forecast changes in consumer demand and adjust their output accordingly.
Also, there are successful stock market investors, who stand out with many years of outperformance compared to their competitors. To be consistently better than the market, they must see and know something others do not see or know, and take action accordingly. For instance, they must detect undervalued stocks, and reap a decent profit when the market pushes stock prices towards their intrinsic value. They successfully invest at the right time in the “right” shares, which deliver outperformance over time.
Theory and History: An…
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Successful entrepreneurs and investors must have what it takes – the…