Sheep populations in the US and Bangladesh

By Carl Richards via bucks.blog.nytimes.com   Article

The Only Investing Pattern That Matters Is Behavioral

“… I stumbled on some research by David J. Leinweber at Caltech … he’s figured out how to predict the stock market using just three variables:

1) Butter production in the United States and Bangladesh
2) Sheep populations in the United States and Bangladesh
3) Cheese production in the United States

Statistically speaking, those three variables predicted 99 percent of the stock market’s movement. Imagine what you’ll be able to do with that information. …

In our very human pursuit of looking for patterns, we start seeing things that aren’t really there. … we will mine the data until we see what we think is a pattern. … We start to believe, we want to believe, that this pattern will have predictive value. …

In fact the S&P 500 is full of patterns if you’re looking for them. Pick your poison: sheep, the S&P 500, gross domestic product, or the latest unemployment numbers. If you look for some sort of theme to emerge, it’s highly likely you will see something. But the past is not prologue. …

Oddly enough, the only pattern that will influence your investing success is your behavior. Can you break the pattern of buying high and selling low? Can you break the pattern of chasing after the next “big” investment? And perhaps most importantly, can you buy low-cost investments in a diversified portfolio, and then ignore it? Now that’s a pattern I can endorse.”

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