Murray Rothbard on the upward march of human progress

[H]istorians of economic thought, similar to historians of other disciplines, have habitually treated the development of science as a linear and upward march into the truth.  Each scientist patiently formulates, tests and discards hypotheses, and thereby each succeeding one stands on the shoulders of the one who came before.  What might be called this 'Whig theory of the history of science' has now been largely discarded for the far more realistic Kuhnian theory of paradigms.  For our purposes the important point of the Kuhn theory is that a very few people patiently test anything, particularly the fundamental assumptions, or basic 'paradigm,' or their theory: and shifts in paradigms can take place even when the new theory is worse than the old.  In short, knowledge can be and is lost as well as gained, and science often proceeds in a zig-zag rather than linear manner.  We might add that this is particularly true in the social or humane sciences.  As a result, paradigms and basic truths get lost, and economists (as well as people in other disciplines) can get worse, and not better, over time.  The years may well bring retrogression as well as progress.

~ Murrary Rothbard, Economic Thought Before Adam Smith: An Austrian Perspective on the History of Economic Thought, Volume I, "The celebrated Adam Smith," p. 438

Kevin Duffy on the extrapolation of investors

“Past performance may not guarantee future results.” Investors often ignore this caveat, piling on after a long-established trend. With investing, the view is always clearer through the rearview mirror.

~ Kevin Duffy, The Coffee Can Portfolio, May 27, 2020, p. 7

Kevin O'Leary on how do deal with stock market corrections

You should always be taking a portion of your savings and investing it for the long term.  Look at your salary, try and save 10% every time you get paid.  Think of all the crap you buy you don't need.  That can be put to work in the stock market.  And over time you get 7 or 8% annualized over a long period of time. That's what it's provided for the last hundred years and my bet is it will continue to do that for the next hundred. 

Most people of this generation are not used to major corrections.  And so now we're starting to get them.  These are normal phenomenon.  It's much better if you're an investor to think long term.  Buy companies that are profitable, that have good balance sheets, that pay dividends and you can sustain yourself through these massive corrections.

~ Kevin O'Leary, "3 reasons why the stock market is plummeting - and what you should do," CNBC.com, December 6, 2018

Fred Hickey on QE3

Maybe I've spent too much time in the basement, but it can't be any clearer to me that we're seeing an almost exact replica of what occurred last year.  Last year Ben Bernanke and a "galaxy of Fed officials" fanned out to pave the way for the next round of QE.  This year they're doing the same thing.  Stocks soared for months before and for months after the implementation of QE2.  Now we're in the months leading up to the implementation of QE3 and the stock market has begun to soar again.  Yet there are a lot of stock market bears trying to short this market.  Look, I'd like to be bearish too, based upon the dismal economic fundamentals.  Unfortunately in this case, you can't fight the Fed.

~ Fred Hickey, The High-Tech Strategist, November 6, 2011

Warren Buffett on business forecasting

In the business world, the rearview mirror is always clearer than the windshield.

~ Warren Buffett

Lakshman Achuthan: Economists not very good at inflection points

[Economists are] very good at extrapolating a trend, which almost by definition will hide a turning point. If you're looking in the rearview mirror, you don't see the curve.

When we compare the leading indicators with how they looked in the previous recession, they still fall short of recessionary readings. [However,] we reserve the right to turn on a dime if the leading indicators turn down or up.

~ Lakshman Achuthan, managing director of the Economic Cycle Research Institute, "Fed, Economists Have Trouble Spotting When Recessions Start," Investor's Business Daily, November 26, 2007

Chris Leithner on the role of market strategists

My impression is that "strategists" are very skilled at summarising and expressing current conventional wisdom, i.e., knowing what presently excites the herd. That is, they don't influence mass expectations, and still less do they create them: instead, they reflect them.

Another impression is that strategists' "model" is, deep down and stripped of all its complexities, nothing other than a one-parameter regression. On average since the mid-'20s, the S&P 500 has increased, on average, by x% per year. From the early '80s to the late '90s, it rose by y% per year on average (where y > x). So, as a baseline, strategists will tell us that, during the next year, the S&P will rise by (say) (x+y)/2 percent. Clearly, these means have standard deviations, and so they pad their "predictions" with various fluff ("upside risks," "downside risks," etc.).

But during booms, the crowd expects -- nay, demands -- much better results, and during busts it anticipates worse ones; that is, the crowd tends to extrapolate the immediate past into the indefinite future. Strategists incorporate these expectations into their public utterances. So why do these folks not just keep their jobs, but prosper? Because their job isn't to predict the future: it's to tell people what they want to hear about the future. And why don't smartarses remind strategists of their past utterances? Because members of the general public don't, by and large, like to be reminded about past mistakes, and more generally that their expectations about the future and its actual course are very different things. Besides, directing the strategist back to his past vomit is, in effect, to question today's conventional wisdom (namely that the strategist knows something that the rest of us don't).

A final point: my impression is that strategists aren't remotely troubled by their past utterances because, psychologically, they're simply incapable of feeling sheepish. That psychological attribute tends to limit their supply, and the public's continuous demand for them ensures their price in the market remains high.

Chris Leithner, Leithner & Company Pty Ltd, December 5, 2007