Thread by @trengriffin

1/ "Ample research shows that most experts do not make great forecasts....

'We find prediction really hard, but we find explanation fairly easy.'

We tell stories to ourselves and others to paper over our poor predictions."

Mauboussin/Callahan

morganstanley.com/im/publication…

2/ "Noise is 'the chance variability of judgments.'"

"Researchers showed pathologists, experts who study body tissue to identify disease, the same biopsy slides at two different times. The average correlation between their overall judgments of disease was 0.63."

3/ "Bias. Most people use rules of thumb more formally called heuristics, to cope with the high information demands of decision making. The availability heuristic describes when a decision maker assesses the likelihood of an event by how easy it is to remember similar instances."

4/ "Introducing base rates often tempers and grounds an estimate. Integrating base rates, the “outside view,” with the inside view generally improves the accuracy of forecasts. The outside view is a “simple statistical analysis of analogous efforts completed earlier.”

5/ "Anticipating revisions in market expectations is the key to generating long-term excess returns as an investor. This process requires you to understand current expectations and why they are likely to change." Mauboussin.

See generally expectationsinvesting.com