Seeking wisdom III - About Change & the Fallacy of Predictions


Fidelity former Magellan Fund manager Peter Lynch said in his book “One up in Wall Street”: “If someone could forecast the stock market, why are they selling advice through $100.- newsletters?” and “There are 60’000 economists in the US, many of them employed full-time trying to forecast recessions & interest rates, and if they could do it successfully twice in a row, they’d be millionaires by now. As far as I know, most of them are still gainfully employed, which ought to tell us something.” 

Don’t believe people who say they can forecast unforeseeable variables. Nobody can forecast interest or currency rates, the GDP, turning points in the economy, the stock market, etc. Massive amounts of information, advanced computers of fancy mathematical formulae don’t help. According to Warren Buffett, the Sage of Omaha, to believe the precision that they project is a chimera. In fact, such models can lull decision-makers into a false sense of security and thereby increase their chances of making mistakes. 

Economics isn’t like physics. “Economics involves too complex a system; economics should emulate physics’ basic ethos, but its search for precision in physics-like formulas is almost always wrong in economics” explains Charlie Munger, the Berkshire Hathaway Vice-Chairman.  

“Nothing endures, but change.”

The Greek Philosopher, Heraclitus was famous for his insistence that ever-present change was the fundamental essence of the universe, as stated in his famous saying above.  He also stated: “No one ever steps in the same river twice”, the Doctrine of Flux.  He was also the inventor of “Logos” and insisted on the philosophical concept of becoming (vs. being).  This stance was complemented by his commitment to a Unity of Opposites in the world, stating that "the path up and down are one and the same".

Heraclitus’ thought-provoking assertions – no wonder he was called “the Obscure” – were made 2500 years before Albert Einstein & the modern philosophers.  

Talking about Albert Einstein, back in 1954 he wrote in a letter:

“The right to search for the truth implies also a duty; one must not conceal any part of what one has recognized to be true”.

And let’s remind ourselves that, at its best, life is completely unpredictable!