Bill Miller: The Absurdity Of Forecasts

Johnny HopkinsBill MillerLeave a Comment

In his latest Q2 2021 Market Letter, Bill Miller highlights how absurd it is to try and forecast the future of markets, and includes recent forecasts by some well known investors. Here’s an excerpt from the letter:

In the spirit of Justice Oliver Wendell Holmes’ remark that people need to be reminded more often than they need to be instructed, this is a reminder that my quarterly missives are called market commentaries and not market outlooks.

I don’t have an outlook on the market as I think it more useful to try and understand what is going on than to try to predict what is going to happen. The future is about probabilities and the current situation is about facts and interpretations.

No one has privileged access to the future and market forecasts tend to be about as accurate as calling a coin toss.

There are, of course, analogies that can be drawn about how the current environment maps onto previous historical data, but success in that depends crucially on how the future will, in fact, resemble the past, and whether the cited analogies turn out to be the governing ones. The record seems to show that sometimes they will and sometimes they won’t and we are back at the coin toss.

None of this appears to have any impact or influence on people’s unending attempts to forecast the markets. As I was gathering some material today for this market letter, I came across this headline in a well-known business publication: “Michael Burry, Jeremy Grantham, and other top investors are predicting an epic market crash. Here are their gravest warnings so far. Jeffrey Gundlach, Leon Cooperman, and Stanley Druckenmiller expect a downturn too.”

Without quoting every one of the eight investors’ views, here is a typical cross section: “greatest speculative bubble of all time” (Burry); “fully fledged epic bubble” (Grantham); saying the market was “anything other than very over-valued versus history is just to be ignorant of all the metrics valuation” (Gundlach). “I have no doubt that we are in a raging mania in all assets” (Druckenmiller).

Then Stan added, “I also have no doubt that I don’t have a clue when that’s gonna end.” He pointed out that “I knew we were in a raging mania in mid ’99, but it kept going on, and if you shorted the tech stocks in mid ’99, you were out of business by the end of the year.”

The others quoted in the story mostly did not appear to share Stan’s cautiousness about the risks of actually acting on predictions of a dramatic decline in stocks. I recall George Soros saying in 2008 that he had predicted that financial crisis. He then wryly noted that he had predicted many financial crises over his career that never materialized.

You can read the full letter here:

Bill Miller Q2 2021 Market Letter

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