Can Mathematicians Forecast Markets?
QUESTION: Greetings Mr Armstrong and thank you for your excellent blog!
I have recently started reading Benoit Mandelbrot’s The Misbehaviour of Markets in which he states that stock prices probably isn’t predictable in any useful sense of the term (p. 6).
I recall that you have stated that stock prices can be predicted but not by non-traders which Mandelbrot said he was. I’m curious to this discrepancy which probably won’t find an answer since successful traders like yourself don’t like to reveal their secrets to their edge. Wouldn’t mathematicians like Mandelbrot eventually also find a way to predict prices?
ANSWER: No. You cannot forecast something based upon math or fundamentals and the greatest of all math never reveals behavior for that is cyclical. So many people fail to even understand that TIME and PRICE are two separate forecasts and saying the Dow can reach 23,000 by the 2015.75 turning point is not taking away from the fact that there is a turning point regardless of the price achieved. Since most people cannot comprehend there are two dimensions, how can they ever forecast anything?
Many people in the industry have attempted to duplicate what I have accomplished. They knew I had a physics background and began hiring “quants” in the 1980s and thought that was my secret. This assumption led to total disaster and the Long Term Capital Management Collapse which they called – When Genius Failed. There is something which exists that is indescribable; a Sixth Sense if you will. This is a dimension which somehow we draw upon which has produced the source of the phase: those who can, do; and those who can’t teach.
I was asked this question once years ago at a conference. What I tried to describe was really indescribable. It is a sense of just knowing, instinctively perhaps, which emerges from a synergy of experience to whatever we are exposed to.
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