Consistently accurate predictions about interconnected complex systems are functionally impossible, at least at any real level of specificity. It’s long been known that even people paid far too much money to make predictions about a constrained system (such as the stock market) usually do no better — and typically worse — than a chimpanzee flinging darts (or whatever else the chimp feels like flinging).
Look at the methods of the best predictors or performers
However, it is possible to invest and consistently outperform the stock market over decades. Warren Buffett takes value investing to another level. Many value investors aren’t supporters of the efficient market hypothesis, but they do trust that the market will eventually start to favor those quality stocks that were, for a time, undervalued. Buffett, however, doesn’t think in these terms. He isn’t concerned with the supply and demand intricacies of the stock market. In fact, he’s not really concerned with the activities of the stock market at all. This is the implication this paraphrase of his famous quote : “In the short term the market is a popularity contest; in the long term it is a weighing machine.”
He chooses stocks solely on the basis of their overall potential as a company – he looks at each as a whole. Holding these stocks as a long-term play, Buffett seeks not capital gain but ownership in quality companies extremely capable of generating earnings. When Buffett invests in a company, he isn’t concerned with whether the market will eventually recognize its worth; he is concerned with how well that company can make money as a business.
If it is too hard to consistently invest and win in stock market that is hard to predict then depend upon situations that you can control and are able to predict.
So if you find very difficult to predict complex interconnected systems then find aspects of them that are usefully predictable or find something else that is predictable.
Build up a core of what is known now and how well we know it and clear ranges for where things will be at different points in the future.
World population is 7 billion plus or minus 250 million. Census counts are not perfectly accurate. There could be systemic hiding of population from census counts. Second and third children are probably being hidden in China. Everyone who is alive in 2011 and does not die will be added to who is living in 2012 plus all of the net new births.
Moore’s law has held up fairly well and is fairly dependable for several to many more years. There are many implications from the nuances and implications of it.
Overall levels of GDP, energy generation and other large scale factors are relatively predictable.
Several common themes emerge when examining the strategies of legendary investors Mr. Davis, Munger, and Buffett. During the period they managed money all these managers generated excess returns for their investors. All of these investors:
(1) focused on very small publicly traded companies,
(2) ran concentrated portfolios,
(3) looked for companies with niche markets,
(4) focused on the longer term,
(5) were not afraid to buy illiquid stocks,
(6) wanted to buy firms with growth potential,
(7) looked for a company’s the ability to generate attractive margins,
(8) bought their positions at reasonable valuations,
(9) managed a limited amount of assets so they could take advantage of the small company niche,
(10) tolerated above-average portfolio volatility,
(11) bought firms that they felt they understood,
(12) purchased only after conducting extensive due diligence,
(13) were not concerned few of the companies had Wall Street coverage or interest.
Bought firms that they felt they understood.
You do not have to be able predict and understand everything.
Know what you can predict and make that work.
Warren Buffet never invested in certain hot technology companies. He did not know which or company or technologies would come out on top.
Bruce Bueno de Mequita best at political predictions
Bueno de Mesquita was enthralled by the idea of rendering the messy business of politics and history into precise, logical equations. He began his signature academic work on “the selectorate,” or the group of actors who run a country. In Bueno de Mesquita’s worldview, there is no such thing as a “national interest” (or “state”). There are just leaders trying desperately to stay in power by building coalitions within their selectorate — buying off cronies in the case of a dictatorship, for example, or producing enough good works to keep hoi polloi happy in a democracy.
To predict how leaders will behave in a conflict, Bueno de Mesquita starts with a specific prediction he wants to make, then interviews four or five experts who know the situation well. He identifies the stakeholders who will exert pressure on the outcome (typically 20 or 30 players) and gets the experts to assign values to the stakeholders in four categories: What outcome do the players want? How hard will they work to get it? How much clout can they exert on others? How firm is their resolve? Each value is expressed as a number on its own arbitrary scale, like 0 to 200. (Sometimes Bueno de Mesquita skips the experts, simply reads newspaper and journal articles and generates his own list of players and numbers.) For example, in the case of Iran’s bomb, Bueno de Mesquita set Ahmadinejad’s preferred outcome at 180 and, on a scale of 0 to 100, his desire to get it at 90, his power at 5 and his resolve at 90.
I have regularly reviewed and made predictions
Back in 2006, I set out a bet/prediction — There will be a quantum computer with over 100 qubits of processing capability sold either as a hardware system or whose use is made available as a commercial service by Dec 31, 2010.
I received an email from Geordie Rose (CTO of Dwave Systems) – The %10 million deal with Lockheed Martin concluded in November of 2010. My prediction/bet was successful. 128 qubit commercial sale.
Various accurate predictions –
10 petaflop computer by 2012-2013. Fujitsu supercomputer at 8 petaflops June 2011, it will be at 10 petaflops in 2012. There are various 20 petaflops systems that will fire up in 2012/2013.
Wireless superbroadband (50-1000Mbps) 2009-2012
Long term Evolution and Wimax in South Korea.
Fiber to the home (100Mbps-1000Mbps) 2010-2015
100 mbps fiber to the home is offered in Australia, Europe, Japan, South Korea. 1 Gbps is offered in Hong Kong and some other places.
80-200mpg cars – mainstream, batteries, ultracapacitors 5-10 times better 2008-2012
So over 80 mpg in the old 2006 calculation.