Predictable Predictions

If there is one thing I try to learn everyday it is not to make predictions.Our brain is a prediction machine making it difficult not to make predictions for various events over various timeframes. 

Last night I watched footy game and one side dominated the first half. They went to the sheds leading 16-0.

Game over. 

The home team were so bad their supporters booed them off the field at half time. We're a fickle bunch.

It is said that football is a game of two halves. 

And last night proved that. The home side staged a miraculous comeback to snatch victory in extra time. 

The fun part is scrolling through my X or Twitter feed and seeing how many footy pundits made predictions before the game, during the game and then in the end. Like stocks, many folks now gamble on footy hoping to hit the jackpot, but also get bragging rights. 

Beforehand there is much discussion and opinions flying left, right and centre. Certainty prevails. 

When the game starts, there is a fair bit of chirping and as the chosen side moves ahead, the degree of confidence grows. Some betting places offer a "cash out early" where tyou can collect your bet early but at a discount. So instead of winning $100 at the end of the game, you can cash out and get, say, $70. I suspect most don't do it, hence why betting places offer it.  

But of course recency bias kicks in and you look forward to collecting the pot of gold at the end. Suddenly, doubt creeps in. Maybe I should have cashed out but now it is too late. Now, you are in the hands of the footy gods. 

Alas, the home side comes back and wins in extra time. 

Damn you gods!

They

 The losers then do what we all do which is blame the other side and start pointing to the many flaws in their game or of course that old stalwart - whinge about the coach who will then usually whinge about the referee. Bad decisions, bad luck, etc.........

What few do is admit they jumped the gun, got greedy and predicted the eventual outcome before the game was over..

We are prone to making predictions as it is part of our make-up. Even I wrote to a mate before the game and told him the eventual winners were hopeless and would lose. So I wont pretend to cover myself in any glory.

This is exactly what happens in markets. The initial confidence, the sly boasting when you look right, the shock went it all starts to go south and finally the disgust when you lose. 

The first thing to learn is to resist making predictions even when everything appears to be in your favour. Second, rebalance. Yes there will be times you sacrifice a bit of profit, but all in all you don't go broke taking a profit. 

Aim to become wiser rather than show off (and don't gamble on football matches because the odds are against you).