Quote of the day (from a new favorite blog, Interloper): “[T]here is nothing you should be more afraid of than a market pundit who is certain.”
What follows is just as good.
Certainty is a tremendous marketing tool but there is a reason that the “con” in con man is short for confidence. Remember that it would only take one highly-leveraged trade to make someone wealthy enough to never work again. This implies that if the “certain” dude (and its 99% of the time a dude) was really 100% sure, they would be leveraged 200-1 on the trade and, if it were successful, you’d never see them again outside of Saint Tropez-situated photos in celebrity magazines. In truth they are not sure – it’s a marketing gimmick to attract your investment dollars.
All of this is just one more facet of the behavioral economics issues I’ve mentioned before as detailed wonderfully by the Psy-Fi blog. We are naturally attracted to certainty and we want to believe that someone has the answer because psychologically the random nature of markets is repellent. But in the end it is most often a trap and all investors should remember what a portfolio manager once told me:
“People don’t like to hear it but we are in the probability game, not the certainty game.“
Interloper is a must-read.