Sean Peche: What great investors know about forecasting the future
By Sean Peche*
“Never extrapolate single data points” as my great friend and former colleague, Richard Pitt, used to tell me.
Anyone with more than 5 minutes knowledge of statistics knows he’s right.
Yet people do it all the time.
The news channels all want to interview the strategist who “got it right last time” or sometimes worse, are "getting it right now"
In every interview I’ve seen with “Gloom Boom and Doom” editor, Marc Faber, he was introduced as, “the person who correctly called the 1987 crash”.
As if that guarantees he’s going to correctly call every other crash…
Surely what Howard Marks calls, “first level thinking”.
Nouriel Roubini called the 2008 US housing crash.
But you didn’t want to “extrapolate that single data point” into every other macro call of his, because during COVID he didn’t predict a V, U or W-shaped recovery, he talked of an L-shaped recovery – ie the economy collapsed and didn’t recover.
Look how well that turned out!
So assuming the guy who “got it right” last time is going to "get it right" now is guilty of “extrapolating a single data point”.
If anything, those strategists are probably suffering from "confidence bias" and even MORE confident in their views.
Bitcoin was $125,000 in October 2025.
But you didn’t want to listen to Bitcoin fanboy, Michael Saylor projection of $150,000 by the end of 2025 and buy?
It was a great time to sell!
So who do we listen to then?
Well, I find it useful paying attention to the opposing views - the guys who “got it wrong” last time because maybe they’re now closer to the time when they “get it right” than ever before.
Isn’t that “second-level thinking”?
When the Bitcoin bulls were throwing bullish, thumb-suck projections around in 2025, you’d have done better watching Charlie Munger interviews on the subject.
And sold.
And did you know that Roubini first called the housing crash in the summer of 2006?
Imagine dismissing his views in 2007 because he “got it wrong” last year …
His rationale was dead right, even though his timing was out.
Last week CNBC interviewed Jeremy Grantham.
Now followers will know I’m a huge Grantham “fanboy”.
Because he has 60 years of market experience and built a firm with AUM of $85bn.
And you don’t get to survive that long in markets, nor build a substantial business without getting more calls right than wrong.
So do I care that he’s been concerned about the USA being over-valued since 2021 & favoured ex-USA markets?
Not at all.
He might be closer to being right on the downside risk facing US equities than ever before!
Besides, ex-USA markets have done almost as well, with arguably “less risk”.
*Sean Peche is a Portfolio Manager at Ranmore Fund Management Ltd.
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