January 02, 2006

Science: Making Money the Easy Way Pt. 2

To quote (more or less) William Goldman on movies:

"Nobody knows anything. Again, for emphasis: NOBODY KNOWS ANYTHING."

Q: Why did Pulp Fiction succeed?
Ask anyone in Hollywood, and you'll get a plethora of different answers. The script was brilliant, a writer might tell you; it was because of the stars, says an agent; the advertising, a producer explains. There is exactly one correct answer.

No one knows.

There are hundreds of thousands of scripts sitting or circulating through studio hands and in studio vaults, and several of these are going to be great, some are brilliant. But they'll never get produced, for whatever reason. Stars apppear in movies that are horrible failures, financially and/or critically, all the time (Hudson Hawk, anyone?). No amount of advertising can save a movie past opening weekend if people don't want to watch it (Battlefield Earth). Complete unknowns occasionally rise to stardom without anyone having any idea how it happened. (Clerks).

Q: How did Pulp Fiction get made?

A: Pulp Fiction got made because Resivoir Dogs succeeded. That's it. Everything else is nodding and appearing wise while saying "Of course, I knew it would be a success, because..." then telling people whatever story makes you look best.

Here's a secret: the exact same thing happens with financial markets. Even the brilliant Warren Buffett will tell you the same thing. He makes educated guesses, and he thinks very hard about what direction certain investments may go in, but they are still guesses. So why is he worth $36 billion? Because his guesses worked. Taking nothing away from his remarkable abilities, and phenominal work ethic, if his first few investments had tanked after forming his investment group, that would have been it for the not-yet legendary investment mogul. Oh, he may well have survived, even thrived once he found (and convinced) new investors to back him, but he would not have had the liquid assets needed to take advantage of the stock market crash; more likely, he would have been extended on the stock market at exactly the wrong moment in history.

So where am I going with this?

I'm going to the December 31, 2005 edition of the National Post. Now, the Post isn't much of a newspaper, granted: it's much more of a collection of conservative opinion pieces strung together with big, big pictures. But I do expect that since fully half to three quarters of the paper is given over to financial news of one sort or another that they'd take that sort of thing seriously.

Apparently not.

The big, big picture on the front of their Financial Post Weekend is Deborah Levin, who is a "professional clairvoyant", specialising in charging $225 for an hour of vague psychobabble. One of the columnists has a lunch meeting with her to ask about the coming year's financial highs and lows, and, as is reasonable, she expects things to be more or less like they were last year, always a safe guess. Safe, because if you make six or seven guesses about future trends, and say all of them will be about the same as last year, huge financial shifts could occur that would only affect three of your guesses, making you 50% correct. That's a fantastic "hit rate" among psychics, and well worth bragging about. Even if she is completely wrong on every guess, all most people will remember is 1) that she was interviewed by the Financial Post, and 2) that the Financial Post is one of the papers that interviewed her (she'll be mentioning this on her "media" page). The number of guesses will become irrelevant: if she got one right, that's what will be talked about, not the five "misses" (though again, be vague enough and almost anything can be turned into a "hit").

She's not alone in this, of course: there are financial psychics all over the place, each adding their own special brand of expertise to anyone who's nervous about entering the stock market, or commodities, or land, or anything else involving investments. But then, who could possibly be nervous about placing their life savings into the hands of a complete stranger? Markets are for those hard of head and firm of conviction, though there are apparently enough who are thick of skull to keep folks like this in business, too.

So, if one of your New Year's Resolutions was to get a bit more money invested, you just might want to ask one little question of whatever advisor you choose: "Who do you think can make better predictions with my money, Warren Buffett or Jupiter?"

The safest place to put your money? Well, here's a million dollars that has no chance of getting lost...

The Easy Way, Pt. 1
The Easy Way, Pt. 3


posted by Thursday at 8:41 pm


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