Wizards, Prophets, and Other Wall Street Fairy Tales

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Wizards, Prophets, and Other Wall Street Fairy Tales

Futurists, corporate strategists, and venture capitalists spend a great deal of time imagining and evaluating peripheral scenarios. These scenarios can be both inspiring and frightening, particularly when it comes to industry disruption and geopolitical forces. The smart executive scans the horizon to avoid being blind-sided.

By definition, one seldom sees a "black swan event" coming, but most of the surprises that derail lives, careers, and businesses are clearly visible to those in other industries and other specialties. The challenge is to monitor those other environments and identify them while there is still time to prepare. In fact, providing an early warning system for those potential surprises is our primary job at Trends.

Our goal is usually to document the evolutionary path of technology, demography, and human behavior, while forecasting the most likely economic implications. The goal is to debunk myths, raise issues, and stimulate further investigation and dialogue aimed at identifying important opportunities and threats.

Tens of thousands benefited from the unique perspectives the Trends editors have delivered over the past 30+ years. However, that's not only because our insights are based solidly on quantifiable data; it's also because we encourage our clients to approach each trend with the objectivity and maturity of corporate decision makers.

Unfortunately, unlike corporate decision makers, individual investors are seriously handicapped when it comes to the decision-making process. They tend to follow the herd, buying high and selling low; emotions trump analytics. There is no long-term strategy to guide thought.

Because of their reliance upon emotion and their lack of analytical discipline, individual investors are susceptible to promoters who profit from the individual investors' biases.

The poor quality of the resulting decisions is not merely a matter of speculation and anecdote. According to Dalbar's comprehensive Quantitative Analysis of Investor Behavior, the "average investor" with a mix of equity and fixed income investments earned just 2.26 percent annually over the 10-year period ending December 31, 2014. For comparison, inflation rose at a 2.14 percent annual rate over that period, while the S&P 500 returned a total of 7.8 percent per year.

Realistically, about half of all investors did better than this, but the other half did even worse.

Because of this, an entire industry has grown up to exploit the fear and greed of individual investors. Many of them appear regularly on Bloomberg, Fox Business, and CNBC...

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