Predicting the Past

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In ancient Greek mythology the titan Prometheus was the god of foresight; he was able to see into the future.

His brother, Epimetheus, was the god of hindsight and had the less-impressive superpower of seeing into the past.

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As the story goes, Prometheus gave mankind the gifts of fire and civilization.

Epimetheus, unable to understand the consequences of his actions, allowed his wife, Pandora, to release all of mankind's ills into the world.

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The story of these two brothers is meant to impart something we already know, namely, that hindsight does not do us much good, but having foresight is indeed quite valuable. And, as you can imagine, in the investment world, this knowledge could be extremely profitable!

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Imagine being able to see into the future and invest aggressively right before a surge in stock returns - then sell just before the market declines!



The problem with this tempting strategy is that there is already a Prometheus in the investment world.

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The investment version of Prometheus is the stock market itself, and no single individual, no mere mortal, has the divine foresight to see the future better than the market does.

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I say the market is the modern Prometheus because it contains not just one person's foresight, but the sum total of the collective foresight of all investors.

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The market, through the buying and selling actions of millions of investors, accounts for possible future events before they occur, and it immediately adjusts prices higher or lower to account for the risks of these future events occurring or not.

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So, in order to outguess this modern-day Prometheus, you have to outguess the cumulative foresight of everyone involved in the market!

Still fancy your chances? Just think about some of the institutions sitting on the other side of each trade!



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The market already knows everything you know, and much more.

Reacting to recent market movements, or using hindsight to make investment decisions, typically results in angst - and more importantly, the loss of real wealth.

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An astute investor will recognise that the foresight of the market mean that they should invest for the long-term, with the confidence that all known future risks are being constantly being factored in to market prices.

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Any investor would love to have the Promethean ability to see into the future, but the data shows that the only Prometheus in the investment world is the market itself.

Those who attempt to outguess this titan of foresight will most likely experience sub-par returns.

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While those who recognise the market’s predictive ability will more likely realise their investment goals.

It is tempting to believe that there are Prometheus-like market pundits out there.

There isn't.

Those pundits are simply stating their ability to predict the past.

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