I have come to the conclusion that analysis is a waste of time. Let me explain why. First you collect all the data, making sure that you have most of the stuff that you can possibly collect. Then you bring all your capabilities and analyse the data to come up with a conclusion. You probably convey this to your audience thru Sms or a newsletter or a column in a paper or thru a TV channel that allows you to sound your views to the public. All fine so far.
Since you are creating a conclusion about the future, it has necessarily to be hedged. Extent of hedging will depend on how convinced you are about your own analysis , but hedged it will be. The troubles begin from here. You see, nobody really wants a hedged view. They want the analyst to be certain. This is what will happen, they need you to say. Its quite a funny thing but if you ask a bunch of people whether every forecast or trade of theirs is going to be correct, they will quickly decry that possibility. However, at their individual level, they do expect that the outcome of their next forecast or next trade to be a winner! So the human mind works at two levels. On the one side it understands that there cannot be certainty about the future but on the other hand, when it comes to action, it expects certainty to exist. So, while people understand that forecasts may not be correct, they cannot, at the practical level, accept that the forecast cannot be correct! This leaves the analyst with an impossible job of meeting an expectation level that cannot be met.
There is another area where this manifests. It is the “I knew it” phenomenon. Somehow, people will always tell you that they ‘just knew’ that such and such thing was going to happen. Never mind the fact that they did not say it at the time you made the forecast. As Jason Zweig writes in The Devil’s Financial Dictionary, “Once you learn what did happen, your mind tricks you into believing that you always knew it would happen.” This aspect is also dealt with by psychologist Daniel Kahneman in his book Thinking, Fast and Slow. Writing about the 2008 crisis, he writes, “I have heard of too many people who “knew well before it happened that the 2008 financial crisis was inevitable.” This sentence contains a highly objectionable word, which should be removed from our vocabulary in discussions of major events. This word is, of course, knew. Some people thought well in advance that there would be a crisis, but they did not know it. They now say they knew it because the crisis did in fact happen.”
People read some random facts here and there and they correlate it to what they think that they had thought earlier and conclude that they were right. The problem is that people do this both the times- when the forecast is correct (they ‘knew’ it was going to happen all along) or when the forecast is wrong (they ‘knew’ well before that this was not going to work). That leaves the analyst always holding the short end of the stick. He doesn’t get credit when he is right and he is always castigated when he is wrong. Its a loser game.
Even analysts know this. So they try to work around this problem by either closing their forecasts very quickly (not giving it enough time to go wrong) or by making so many forecasts that all of them get drowned in the noise of their own creation. Neither of these approaches serves the purpose of their intended user and hence everyone ends a loser here. So, for an analyst to succeed, the consumer of his output has to become more intelligent (i.e. stop thinking that he knows) or become more acceptable (that there cannot be a fixed outcome to the future). Until then, dissatisfaction will abound on both sides.