Sunday, August 1, 2021

Where are we and where are we going? The perennial question for investors


No amount of sophistication is going to allay the fact that all your knowledge is about the past and all your decisions are about the future. (Ian H. Wilson, former GE executive)

Most analysts spend time focused on the past through conveying information or knowledge. There are descriptions of new data generated. It is placed in context with past events. A time series is reviewed. 

The analysis is about the past. It is just telling us where we are. Meaning is presented through context. Less time is spent on what new information means for the future. This presentation of knowledge is critical and necessary for any discussion of the future. 

I don't blame analysts for their focus on describing the past. I do it myself, yet the hard work is predicting or handicapping the future. Where are we going? A forecast must be made and confidence in that forecast has to be measured. The odds of success should be presented.

Trend followers focus on the past, yet there is clear intellectual honesty in their analysis and a clear focus on the future. There is no misrepresentation. Past prices are turned into trend signals. There is no deep narrative. Manipulations of price are turned into a signal and a decision about the future is made - prices are going higher, lower, or direction cannot be determined. If the perceived future proves to be wrong, there is an exit. 

There are, of course, other ways to convert past knowledge into future decisions, but there is no simpler way to start the process. Alternative forecast should start with the premise that the trend is correct and requires a strong standard to take any opposite position.  

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