Financial Analysts are Basically Astrologers

I read an article today that pissed me off. And it’s not even 9AM. What a start of the day.

But before I introduce it, I have to tell a story from my past. Back when I was choosing a career (or, rather, what I thought would become my career), I was going through a list of all professions because that’s the best way to decide what to do with your life. I mean, it’s not like you get a free try: you gotta pick one on the list, go to college for it, go massively in debt and then you’re stuck doing that for the rest of your life. Anyway, I was going through the list and I was shocked to see “astrologer” in the list of possible professions. That is, someone could study for years and actually become an astrologer. And predict’s people future and stuff. What school do you have to go to in order to become an astrologist, Hogwarts?

So anyway, I ended up choosing finance, but recently, I’ve started to realize many of my colleagues are really not any better than astrologers. In both cases, they make wild predictions based on nothing but bullshit and random models. That’s right, I have to confess: most models in finance are not really better than astrology.

You could look at Jupiter’s rings and basically take your investing decisions out of that and you wouldn’t do any worse than most financial analysts. I’m not sure how many times I must repeat that stocks prices are RANDOM meaning they move RANDOMLY and you CANNOT predict stock prices. Now, that doesn’t mean finance is useless (although it mostly is, let’s not lie), but always be very cautious when anybody pretends to predict the future.

So anyway, I read an article on Yahoo Finance, a news source about as reliable as Buzzfeed after you remove the pictures, that predicted at 20%+ market crash “very soon.” A 20%+ crash based on what? What you want to happen? Well tough shit, the market doesn’t give a shit about what you want to happen or even what you think is going to happen.

“Damn! This guy thinks I should go down! Well, guess I have to now”

-The S&P 500

Of course, the idiot brought some garbage technical analysis into the mix. I think it just reminded how much I hated technical analysis. Because technical analysis is basically astrology applied to the market; in fact, there are financial astrologers

Speaking of which, before I go on, I would like to bring the quote of the century:

In 1964, he advised a trader that, because of the position of various planets in outer space, the value of a market-leading birth-control pill was going to drop sharply

Source: http://www.telegraph.co.uk/culture/culturenews/10481595/Financial-astrology-can-the-stars-affect-stocks.html

Ah, I hate when that happens. Sometimes, I look at Neptune and think to myself, “Man, the Galaxy Note 7 is going to catch on fire!”

Source: Wikipedia

In any event, we can mock astrology, but I feel it’s no more stupid than technical analysis.

Anyway, so the article also brought some fundamental garbage with some random ratios that are utterly meaningless. “The stock buyback ratio went down blah blah the dividend average 5 year growth…” It kept going on, with a cornucopia of random data piled one over another. At the end of the article, you would have been convinced the entire United States was going down under tomorrow morning.

But here’s the thing: random statistical data is utterly meaningless. It really doesn’t matter than the P/E 5 years whatever is above its historical mean and it doesn’t matter that the dividend yield on the SPY is below 2% or whatever. There are literally more “fundamental indicators” and combinations of data than stars in the universe (see what I did there??).

Just because you use math and real data in your model doesn’t mean your model is worth shit. You can literally always build a model that will support what you are trying to say. Sometimes, people put the “fundamental” label on an analysis like it’s instantly the solution to everything. “I use fundamental analysis! It must work, it’s fundamental guys!”

Just because you have a model doesn’t mean your model does anything and just because your model would have worked in the past doesn’t mean it will work in the future. Just because you study finance doesn’t mean you are good at it. In my entire life, I’ve never really been entirely sure of any prediction I’ve made. I’ve been pretty confident, but never sure. In fact, most of what you do in finance is learning that you aren’t that you usually aren’t better than a random guess. When 99% of mutual funds underperform the general market, something that requires absolutely 0 fundamental analysis, you have to wonder just how important those “models” are. If those people really can predict 20% crashes like that, then why aren’t they making a fortune? Well, they are, but out of the suckers that give them their money to invest with, not from the market.

Anyway it always annoys me when someone pretends he can predict the stock market. Tough luck: you can’t. You may have a guess, and you guess might be valid or it may not, but it will always remain what it is: a guess. And I’m not sure many of financial analysts are better at guessing than astrologists.

Maybe I should start my own astrology service. I think I would based myself out of Nostradamus’ predictions. At this point, why not?

From the top of the Aventine hill a voice heard,
Be gone, be gone all of you on both sides:
The anger will be appeased by the blood of the red ones,
From Rimini and Prato, the Colonna expelled.

The Aventine hill (whatever that is), blood of the red ones… This obviously means you should buy AMD. Look, it’s (kinda) red:

Also there’s AMD in that prophecy and buy in it. Yeah, buy AMD. Nostradamus predicted its rise centuries ago!!

Liked it? Take a second to support fscomeau on Patreon!

, , , ,