Sherman Kent - The analyst's analyst - Be precise with your forecasts

 

Sherman Kent, the great trainer of CIA analysts, should be a strong influence on any investor who is making forecasts about an uncertain market future. Kent focused on the precision in language when describing future assessments and the need to think in probabilities. He also focused on the assessment of any forecast. Why did it work or not work? What has gone wrong and what can we do to provide alternative explanations? How does the evidence lead to specific forecasts and are there alternative explanations for the evidence? This can only be done through focus and precision.

It is not enough to say I believe the Fed will raise rates if you don't provide some odds for the likelihood this event. Without precision, there is no meaning. For many, this may seem obvious but any assessment of talking heads and analysts will suggest that providing precisions is not the normal approach to making forecasts. 

Sherman Kent - My guy for precision in forecasting language

For more on Sherman Kent, see:

Sherman Kent - the godfather of precision in forecasting language

"Likely" or "Probable" - there is a difference in language when talking about recommendations in the new year

Language, perception, and numbers - The translation problem

What does failed intelligence tell us about investing

We have written about Kent in the past but have come across a useful assessment of Kent by Phil Tetlock in his book Expert Political Judgment: How Good Is It? How Can we Know?.  Tetlock studies the forecasts of experts concerning highly uncertain events and provides a great assessment of Kent's thinking.

"We can draw cumulative lessons from experience only if we are aware of gaps between what we expected and what happened, acknowledge the possibilities that those gaps signal shortcomings in our understanding, and test alternative interpretations of those gaps in an evenhanded fashion. This means doing what we do here: obtaining explicit subjective probability estimates (not just vague verbiage) eliciting reputational bets that pit rival world views against each other, and assessing the consistency of the standards of evidence experts apply to evidence." pp. 238 

Go precise and deep with your analysis and always assess what is potentially going wrong.