With so many financial news outlets offering so many often conflicting headlines and opinions, how is an investor to know what to do? That’s a question that Validea CEO John Reese looks at in his latest column for Canada’s Globe and Mail.
“In an arena as complex as the stock market, there are always two sides to an issue – and sometimes many more – and you can almost always find data to support any of those sides,” Reese writes. “So, as convincing as they may be, a particular headline and article can lead you into big trouble if you let them guide your investment decisions. That doesn’t mean you should ignore the financial news. Information is still power. But how you use the overabundance of information that exists today is key.”
Reese offers a few tips for how investors can find their way through the thick forest of conflicting opinions. He cites the research of Dr. Philip Tetlock, who has performed extensive research on the issue of forecasters and forecasting. “Dr. Tetlock, a psychologist and management professor, did find that some types of forecasters are better than others,” Reese says. “Using terms that philosopher Isaiah Berlin used to describe two broad types of thinkers, Dr. Tetlock said that “foxes” did better than “hedgehogs.” “The better forecasters were like [Berlin’s] foxes: self-critical, eclectic thinkers who were willing to update their beliefs when faced with contrary evidence, were doubtful of grand schemes and were rather modest about their predictive ability,” Dr. Tetlock told Money magazine. The less successful forecasters were like hedgehogs, which “ ‘know one big thing,’ toil devotedly within one tradition, and reach for formulaic solutions to ill-defined problems.”
To think like a fox, Reese says investors should gather much information as they can before making a decision, particularly information representing opposing viewpoints. “When you have an opinion, ask yourself, ‘How might I be wrong?'” he says.
To read all of Reese’s tips, click here.
Tagged: John P. Reese, Philip Tetlock, Validea
