You send out 1,000 postcards claiming to predict the rise or fall of a certain stock tomorrow, half predicting up and half predicting down. The next day, you send a similar postcard to the 500 addressees who got the correct prediction. The next day, 250 postcards the remaining correct guesses. Etc. After days of this, you're left with a small handful of recipients who hold proof that you correctly predicted a random event over and over again, to an impossible degree of accuracy. You're a genius! This is a group of people who are ready to hand over a lot of cash to hear your next prediction.

It's the same when you've got hundreds of books every year claiming to know what's going to happen to the economy. Every year I read about some book that predicted we'd be in exactly this situation years before it happened. A year or two later, those few books are forgotten, but we get a new batch. It's all monkeys on typewriters.

When George Bush was [re]elected, I was in a very cynical mood and switched from buying high tech stocks to companies dealing in gluttony (fast food and soda), greed (casinos and lottery technology), and delusion (alcohol).

I did pretty well.

Now I buy shares in companies dealing in things like diapers, soap, and aspirin, and sleep better at night.

-Arthur Carlson, WKRP Station Manager (h/t J. Zawinski)

Sometimes it flucks up. Sometimes it flucks down.

Or, as a smarter man than I once said "There's a sucker born every minute."

1. I am now mentally scarred by the image of Chairman Greenspan in a short skirt and waving pompoms.

We need to come up with a way to get folks like the authors of "Dow 36000" to put some skin behind their prediction. "OK, you say the Dow will hit 36,000 by 2005. What will you do if it doesn't?" Give a million dollars to charity? Eat a toad on live TV? Spend the rest of your life working in a leper colony in Zimbabwe?

Having to take a cushy job at a right-wing think tank doesn't make it.

That's for all those who bought into the 36K BS and the whole ethos of the shrub years.

Unfortunately for the rest of you, looking at my investment decisions and doing just the opposite doesn't win either...

A Businessweek Bestseller

"Rock-solid investment advice.... Long-term investors can place it on an altar next to the works of Benjamin Graham and Peter Lynch, as well as Warren Buffett's annual homilies to his Berkshire Hathaway investors."
--Knight A. Kiplinger, Kiplinger's Personal Finance Magazine

Economists do understand this. They know it as Stein's Law: "if something cannot go on for ever, it will stop".

"If you don't forecast right, forecast often."

Palmists are of course in no doubt as to who was right. As with all cranks, they feel they haven’t been given a fair hearing and that orthodoxy is ganging up on them. [quoting palmistry author Noel Jaquin] “The reward of the pioneer is so often the ridicule of his fellow-men. We are not very much more just today. Of recent years men of genius have been deprived of their living and literally hounded to death by the ridicule of their more ignorant brethren.” How true, how true. They laughed at Galileo, they laughed at Darwin, they laughed at Edison … and they laughed at Punch and Judy.

Dunno whether Sagan later adapted this for his own purposes, came up with nearly the same metaphor independently, or has just become a quote-magnet for difficult-to-attribute pithy sayings about science in the same way as Sam Goldwyn and Yogi Berra.

A very entertaining book along these lines is Why the best-laid investment plans usually go wrong by Harry Browne. He had been one of those guys who made a run of successful preditions (because his political beliefs led him to expect inflation and recession at the same time right at the point where that happened). In this book, he went through all the different reasons why nobody could really predict the markets or economy, though it was possible to have some insights or understanding in particular cases or situations. (For example, if you think inflation is likely in the future, it's nice to have some expert insight into what investments would do well or poorly in such a situation, and how risky they would be if you were wrong.). He mentioned the 1000 letters trick--elsewhere I have seen that described as the "brilliant penny scam."

To a first approximation, the only people on TV whose first job is providing good information are the people on occasional public access channels where you can watch high school or college class lectures. Even news organizations have mixed jobs--along with informing you, they need audiences (so scaring or enraging you is pretty helpful) and advertisers (so some stories are pretty hard to tell because you risk losing a bunch of your commercials) and sources (so don't p--s off anyone too powerful or all your leaks will stop).

When I was on Kwajalein a lot of my colleagues subscribed to that thing, bought Krugerrands every paycheck, and generally thought they were brilliant (all the while making $5/hour, just like I was).

Browne also wrote a self-help book which was probably no crazier than the average self help book, but which notably discouraged involvement in politics as a trap (since success or failure depended on other people's decisions that you mostly couldn"t influence.). He later ran for president twice as a libertarian, presumably without the support of those who took his previous advice to heart. He also had some investment theory that amounted to dividing the economy into four possible states (inflation/deflation and boom/recession) and hedging against each one in some way. I imagine this works till the economy falls out of your model in some way (like having different parts of the economy boom and bust at the same time, or something), and that the hedges start costing you a lot over time when you're putting something like a quarter of your investments on hedging something that probably has a probability of occurring of much less than 0.25.

These books were all lying around my house when I was a kid and began to get interested in politics and economics. My parents weren't remotely goldbugs, but I guess this stuff was being read in their social circle or something.

For some reason, this has collided with my memory of an offhand remark in a book review by John Leonard back in 2000, suggesting that "... an anthropological inquiry into the stock exchange as a form of superstitious magic is greatly overdue, with Alan Greenspan as a Magus or a Fisher King", so that I am now imagining the Fisher King in a short skirt, waving pompoms[*].

[*] Possibly while out in his boat, fishing.[**]

[**]No jumping, though, 'cause of the wound.

It only would have kept going up until large groups of people started selling off to pay for retirement, and when more folks are retired than are working for a living. Then the magic power of leverage would have resulted in the Dow dropping.

Browne's books and philosophy were influential to Robert Ringer (among others), RR wrote a lot of very popular books in the 70s (example: Looking Out for Number 1 and Winning Through Intimidation)

That suggests a new stock index: the Seven Deadly Sins Index. (7DSI)

He eventually said he regretted letting his publisher talk him into aggressive titles-- this might be checkable, since I believe he started out by being self-published.

It performs pretty well against the S&P 500... until you take into account the real vice in the fund, namely, its management fees.

Mr. O'Malley says a variant of that in Crockett Johnson's Barnaby (1940's)