Sunday, January 1, 2012

Predicting with the right question

What surprises do you anticipate in the coming year? And the columnist replies, smiling to avoid seeming snarky: If I anticipated them, they wouldn't be surprises. A better question is this: Where is the conventional wisdom most likely to be wrong?

- Dave Wessel WSJ December 29th

Beating conventional wisdom or thinking through where average opinion is wrong is the key to success in any investment area. The rational expectations schools states that, on average, the markets get it right. But,  on average does not mean that it is always right or that some may be better at forecasting than others. This is the basis for thought on rational beliefs. Current predictions are based on rationality bit that does not mean that these forecasts will be correct. Conventional wisdom is based on rational thought but it should provide returns that will be average. Above average returns have to be based on non-conventional thinking.

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