“Some of them wanted to sell me snake oil and I’m not necessarily going to dismiss all of these, as I have never found a rusty snake.” 

-Author Terry Pratchett on some of the 60,000 emails that he received after announcing he had been diagnosed with early onset Alzheimer’s disease

(You can read his full speech on the matter here at http://www.freerepublic.com/focus/f-chat/1986843/posts . It is well worth the read for its humour and its candour alone. If you have not read his books I would also recommend that you start)

What we tell people consistently when we work with them is that “How you think is more important than what you think” and there are two simple tests you can use straight away:

The First Test – Are they more right about the future than the average on a consistent basis

If I demonstrated to you over 10 weeks that I could predict which way the stock market would go each week would you then give me $10,000 to advise you for the next week so you could take out an option on the share market index result at the end of the month?

If the answer is yes then you had just fallen for one of the classic scams which is possible on the internet. This is how works:

• On day one you send out 10 million emails stating that you can predict which way the stock market will go in the following seven days.

• In half of those emails you tell the people that the stock market will go up and the other half you tell them that the stock market will go down.

• The following week you send 5 million e-mails to the people that received the previous correct “prediction” and in half of those e-mails you tell the people that the stock market will go up and the other half you tell them that the stock market will go down.

• In the third week you send out 2.5 million emails to the people that received the previous two correct “prediction” and in half of those e-mails you tell the people that the stock market will go up and the other half you tell them that the stock market will go down.

And so on ……

At the end all the 10 weeks you will have 9,766 people who have received a correct prediction from you 10 weeks in a row. If 10% of those send you $10,000 you have just netted a cool $9,766,000. Not bad for ten weeks work pressing an email button once a week!

The point of this story is that many people have been propelled into the spotlight as “knowing what the future will be” purely by chance.

During 2008 as oil prices surged the media were full of stories about the analysts who got the oil price forecast right:

The price of crude oil could soar to $200 a barrel in as little as six months, as supply continues to struggle to meet demand, a report has warned………….. Mr Murti correctly predicted three years ago – when oil was about $55 a barrel – that it would pass $100, which it reached for the first time in January of this year.

 

–          BBC News May 7, 2008[1]

 

Maverick economist Jeff Rubin, who is at the top of his game these days, says Canadians shouldn’t be surprised to see gasoline at $1.50 a litre and oil at $150 (U.S.) a barrel within the next four years – possibly much sooner……. He correctly predicted in 2000 that oil would average $50 by mid-decade and, two years ago, was right when he said oil would hit $100 by the end of 2007 (though Goldman Sachs made the prediction a year earlier).

 – The Star January 11 2008[2]

……the investment guru Jim Rogers the latest to predict that the only direction is upward. Mr Rogers, who two years ago correctly predicted oil would reach $US100 a barrel, told investors at a conference in China over the weekend that he expected prices to go even higher than their present level. They will keep rising, “unless someone finds a major oilfield very quickly, in accessible areas”, he said.

 – Sydney Morning Herald 30^th June, 2008[3]

Now I wish to make it clear that I am not criticising the individuals who are quoted in these articles. but expecting that one successful prediction (if in fact they really are that) in a volatile market makes you an expert about what the future will bring is clearly ridiculous. If I wrote on 27 pieces of paper a price of oil between $40 a barrel and $300 dollars a barrel and stuck them on a wall and then asked monkeys to throw darts at them then one of the monkeys will almost certainly correctly predict the price of oil in a years time. I would be laughed off the stage if I then tried to sell that monkey as an expert on oil prices and rightly so.