Pseudoscience, Skepticism, and Predicting Markets

The "Delphic Oracles and Science" section of Victor Niederhoffer's The Education of a Speculatory offers some good connections between the work of Martin Gardner, Irving Langmuir, and John Wheeler and market forecasters.

Irving Langmuir's Symptoms of Pseudoscience

1) The maximum effect that is observed is produced by a causative agent of barely detectable intensity, and the magnitude of the effect is substantially independent of the intensity of the cause.
2) The effect of a magnitude that remains close to the limit of detectability; or, many measurements are necessary because of the very low statistical significance of the results.
3) [There are] claims of great accuracy.
4) Fantastic theories contrary to experience.
5) Criticisms are met by ad hoc excuses thought up on the spur of the moment (p 77).

Victor Niederhoffer's Symptoms of Pseudoscience in Market Analysis

1) Appeal to authority.
2) An absence of counting.
3) A framing of predictions in a form that cannot be tested.
4) A tautological prediction guaranteed to be true under almost all conceivable circumstances.
5) No allowance for chance variations; any randomly formed groups exposed to varying conditions will show differences in means and variability. But the differences can be due to sampling variation rather than the true effects of the conditions. That's what statistical analysis is about.
6) A paranoid mien.
7) Disregard of alternative explanations.
8) Self-evaluation of accuracy.
9) Retrofitted systems (p 8).

Niederhoffer recommends

Martin Gardner and Christopher Scott in the Oxford Companion to the Mind
Fads and Fallacies in the Name of Science, by Martin Gardner.
Paranormal Phenomena: The Problem of Pro, by

Holding Onto Stagnation or Growth

Victor Niederhoffer hung out with his Grandmother, Birdie, after she'd retired to Florida. In "The Education of a Speculator," he recounts a conversation with her in his "Everyone Retures to the South" short story/mini-section, where Birdie kept stagnating companies and let go of growing ones.

We reminisced about some of Martin's stock market coups: Air Reduction, Allis Chalmers, American Can. These stalwarts of the early 20th century had been bequethed to her and, like most elderly people in this situation, she had sold the ones that were above cost, only to see them quadruple in the next few years, and had retained the ones that were below cost, such as Famous Artists, Four Seasons Nursing, and Levin-Townsend, which eventually sank into bankruptcy. I asked Birdie of Wolfie's should stock up on pastrami or ham. The pastrami moves briskly. Taking that perspective, it's easy to see which stocks to unload and which to hold or buy more of (pp 57-58)

Clinging to past stagnations and abandoning promising growth areas is easy to do in many areas of life, not just stocks and investment. There may be some residual hope that past disappointments can be revived into greatness. Or, an inability to acknowledge that it was a failure. These phenomenon can keep us from moving on to activities with more potential.

Once Burned . . .

In the "Once Burned . . ." short story/mini-section of Victor Niederhoffer's The Education of a Speculator, the Depression's lasting effect on some of Niederhoffer's relatives is explained:

I realized now that men of Martin's generation, who lost everything in the Depression, were traumatized by the vivid memories of their losses. In addition to their focus on the wrong companies, these men suffered from psychological maladies that had even worse consequences for their bank balances. (pp 48)

He goes on to explain how Depression's one-time event detrimentally influenced investing decisions much later on, even though nothing the scale of the Depression's magnitude ever occurred again.

Sometimes, gay people who have been traumatized by bullying in their childhoods truly believe and are terrorized by thoughts of being attacked again as adults. This valid and understandable thinking leads to great obstacles and impairment in everyday living and striving for personal goals.