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Your last prediction didn't play out as expected...

December 14, 2008, 7:00 PM Przemysław Radomski , CFA

Your last prediction didn't play out as expected. You will surely be wrong the next time.

In the essay that I believe, you are referring to I deal with the short- and immediate term, which IS BOUND to be wrong more often than if I wrote about the long term. The probability of being correct more or less increases along with the length of the period that one is analyzing. I'm quite sure that we will have more than 3 times higher prices in vast majority of all commodities five years from now, but if I am talking about the short term, then I need to base my views on other tools and they give me less certainty than the fundamental, macroeconomic analysis. In that case one can be only right about 50%-80% of the time and given the fact that I write about the short term quite often (as most of my Readers request), it is inevitable that some of my comments will prove incorrect. The more detailed a prediction is, the lower the above percentage would be.

For example if I said that tomorrow will be a sunny day, then I have relatively high chances of being right. However, if I said that tomorrow we will have a sunny day, but it will be raining for 14 minutes at 9.27 AM, then the probability that I will be totally right is very low. Now, if we do have good weather the next day and it rains for 22 minutes at 10.55 AM - you can tell that I was wrong and that is true.

Summing up, the first opinion is correct and the second one is wrong, but don't you think that the second one was more useful? Especially if you were planning a picnic for the whole day and you didn't take rain into account. The prediction that was wrong would make you prepare and take an umbrella, whereas the first, correct, opinion would result in ruining your day. The second opinion gives you the same basic prediction but also makes an additional comment. In order for the prediction to be correct, ALL mentioned opinions should prove correct. However, in order for the prediction to be most useful, it needs to contain many details, each of which may prove incorrect. Therefore, the more detailed (thus useful) a particular is, the lower the chance of being totally correct gets.

The difference is that if you read/hear the simple/probable commentary then you cannot infer more details from it. On the other hand, if you read the detailed/less probable commentary, then you can infer the general commentary from it, simply by ignoring the details. In the above example that would mean reading the second commentary, but paying attention only to the main part, in which it has been said that the next day is going to be sunny, and ignoring the following details. In case of the second commentary you can choose how detailed / probable conclusion you want to get, whereas in the case of the first commentary you can get only the basic/relatively probable conclusion.

Now, let's relate this lengthy example to the commentaries regarding the situation on the precious metals market. The same rules apply - you can either have a rather self-evident commentary (there's going to be at least one sunny day in the next year; the precious metals are going higher in the long-term) that is highly probably going to be correct, or you can have a commentary full of details, which is not likely to be completely correct, but from which you can infer exactly the same basic information as it is the case with the basic essays. Naturally, it's up to you to decide which type of them you want to use and in what way you will use them. I've been following this market and also reading many essays years before I started publishing my own. During that time I was always surprised by the amount of self-evident commentaries that are posted on various portals. I felt that many of them are just there to reassure investors that they chose the sector wisely.

OK, that is crucial, but does one want to read it over and over? I certainly didn't. Therefore, when I decided to post my first essays on the Internet, I knew that writing obvious statements without any providing any additional/ unique information/opinion is the last thing I want to do. Obviously there is a price for that, and that is the risk of being wrong more often than most of other analysts. I believe this is the only fair way to write commentaries, as I value my Readers' time, as much as I value my own, and writing something obvious for me and for you would be just a waste of your and my time.

Therefore, more or less, I have just admitted that even if I'm correct this time, I will be wrong some other time, because of the specifics of the analysis that I decided to publish. And yes, basing on statistics (how many Investors decide do register on my website) my Readers demand this type of service. All I can do is do thorough analysis and write what I believe is the most probable outcome at the moment of posting the essay.

Nobody in the business can be correct all the time, especially when he/she comments on the short term. What is important is how one deals with it. I always emphasize that timing the bottom is speculation and should be viewed as such. This means using only a small part of one’s capital to do it. Additionally, my comments are posted every 9-14 days or so, whereas the situation on the market changes every second. I may change my mind the very next day based on various factors and I am then unable to change the essay that has already been posted. I can only send a Market Update to my registered Users.

Being wrong from time to time is one thing, making money in the long term is another thing. There are much more factors that need to be taken into account (portfolio structure, overall strategy, money management, position sizing, and so on). The full version of my service covers also these topics.

Please note that you are responsible for your investment decisions. Please read the disclaimer on the bottom of the page, if you haven't done so already.

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