Practical analysis for investment professionals
27 May 2016

Weekend Reads: The Seersucker Theory, Grilling, and Horse Racing

Posted In: Weekend Reads

Weekend Reads: The Seersucker Theory, Grilling, and Horse Racing

The naysayers can say what they want about Twitter Inc., but I find the platform to be an invaluable resource: I often stumble upon articles and nuggets of information I would never have found, had it not been for a tweet that pointed me in that direction. Here’s a great example. This week I saw the following exchange on Twitter:

Which left me wondering: “What speech?”

Which then led me to “Trying Too Hard,” a keynote speech that Dean Williams delivered to the Financial Analysts Federation Seminar on 9 August 1981. In it, he mentions “the seer-sucker theory.” Which led me to a blog post, “James Randi and the Seer-Sucker Illusion,” published by The Psy-Fi Blog.

Now you are wondering: “Where is all this going, and what the heck is the seer-sucker theory?”

For that, we turn to the source: “The Seer-Sucker Theory: The Value of Experts in Forecasting” by J. Scott Armstrong, published in Technology Review in 1980 and posted on the Social Science Research Network.

“People are willing to pay heavily for expert advice,” Armstrong writes. “Economists are consulted to tell us how the economy will change, stock analysts are paid large salaries to forecast the earnings of various companies, and political experts command large fees to tell our leaders what the future holds. The available evidence, however, implies that this money is poorly spent. But because few people pay attention to this evidence, I have come up with what I call the seersucker theory: No matter how much evidence exists that seers do not exist, suckers will pay for the existence of seers. One would expect experts to have reliable information for predicting change and to be able to utilize the information effectively. However, expertise beyond a minimal level is of little value in forecasting change. This conclusion is both surprising and useful, and its implication is clear: Don’t hire the best expert, hire the cheapest expert.”

This reminded me of a piece Salil Mehta, CFA, authored earlier this year for Enterprising Investor on Wall Street forecasts and year-to-date returns, and the difference between what was forecast to happen and what actually happened.

Speaking of looking back, my colleague, Mark Harrison, CFA, wrote a fantastic post about Jack L. Treynor and the birth of the quants. As you may know, the Treynor Ratio is a ratio he developed “that measures returns earned in excess of that which could have been earned on a riskless investment per each unit of market risk.”

Here are some other interesting reads — some old, some new, never dull — in case you missed them:

  • To expand on the Twitter theme that kicked off this post, Ben Carlson, CFA, tells readers about the 10 things he loves about Twitter. (A Wealth of Common Sense)
  • As a consummate pre-crastintor, I not sure whether to applaud that such a term exists, or to bemoan the notion that pre-crastinators are apparently not as creative as procrastinators. That is why Adam Grant taught himself to procrastinate. (The New York Times)
  • Many, many years ago, I read an article — it may have been a excerpt — about Muhammad Ali that was written by David Remnick. I remember being so transported by the language and engrossed in his skillful storytelling that I bought King of the World, a book about the rise of the boxing legend, and read it from cover to cover. It just goes to show: Any topic can be a page turner with the right author. Recently, I found myself in a similar situation: I was listening to Here & Now’s Robin Young talking to Joe Drape, author of a new book about Triple Crown winner American Pharoah. Young quoted a sentence from the book that showcased his “gorgeous” language: “hundreds of horses crossing grounds, their hooves beating out a rhythm on the soft grass, sounding like the symphony of sleepy heads gratefully hitting their pillows one after another.” That was enough to get me to buy a book about . . . a race horse!
  • If you have ever spent time with a South African, I’m willing to bet the term braai has come up. It’s a local word for “grill” and an activity many consider sacrosanct. There’s even a National Braai Day with an anthem. A writer for Food & Wine magazine, in an article about a food safari in South Africa, put it perfectly: “The three holiest words in South Africa’s culinary tradition are biltong, sundowner and braai. Respectively, these refer to air-dried meat; a sunset cocktail; and an outdoor barbecue, the preferred form of social communion. Biltong and beef jerky are both salt-cured meat snacks just as Champagne and Schlitz are both refreshing carbonated beverages. But you wouldn’t want to say that to a Frenchman or a South African.” Recently, Julia Moskin of the The New York Times traveled to my homeland and penned a terrific piece about the social activity known as braaing. “We have 11 official languages, and braai is the only word that is recognized in all of them,” Katlego Sebastian Mlambo, a local chef, told Moskin. “At night, everyone here can sit and watch a fire for hours. . . . We call it the African TV.”
  • Farhad Manjoo, also writing for The New York Times, has a great line in his story about corporate America’s quest to market to millennials: “…you are as likely to come upon an archetypal millennial as you are to run into Joe Sixpack or be invited to a barbecue at the median American household. It’s hard to believe this even needs to be said, yet here we are: Macroscale demographic trends rarely govern most individuals’ life and work decisions. For most practical purposes — hiring and managing, selling to, creating products for — your company may be better off recognizing more discrete and meaningful characteristics in workers and customers than simply the year of their birth.”
  • Back in 1865, Frederick Law Olmsted, the landscape architect famous for designing (together with Calvert Vaux) New York’s Central Park, wrote about the connection between nature and mental well-being: “It is a scientific fact that the occasional contemplation of natural scenes of an impressive character . . . is favorable to the health and vigor of men and especially to the health and vigor of their intellect beyond any other conditions which can be offered them.” In “This Is Your Brain on Nature,” the author discusses research that shows how nature lowers stress. (National Geographic) For those of you in the United States who will be enjoying the long Memorial Day weekend, the unofficial beginning of the summer vacation season, and for those elsewhere, do yourself a favor and venture into nature this weekend, if you can. You’ll be doing your over-stressed brain a big favor.

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All posts are the opinion of the author. As such, they should not be construed as investment advice, nor do the opinions expressed necessarily reflect the views of CFA Institute or the author’s employer.

Image credit: iStockphoto.com/Ellica_S

About the Author(s)
Lauren Foster

Lauren Foster is the former managing editor of Enterprising Investor and co-lead of CFA Institute’s Women in Investment Management initiative. Previously, she worked as a freelance writer for Barron’s and the Financial Times. Prior to her freelance work, Foster spent nearly a decade on staff at the FT as a reporter and editor based in the New York bureau. Foster holds a BA in political science from the University of Cape Town, and an MS in journalism from Columbia University.

2 thoughts on “Weekend Reads: The Seersucker Theory, Grilling, and Horse Racing”

  1. Rowan Williams-Short says:

    Great post, Lauren. I read it on my laptop while having a braai with both biltong and a sundowner (not “klippies and coke” though) at Pringle Bay, looking across False Bay to Table Mountain.

    Regarding seer-sucker, to add to how bad earnings forecasts are, I have collected 17 years of quarterly South African “expert” inflation forecasts, and I have access to 34 years of quarterly USA inflation forecasts. Both sets of forecasts have proven almost comically hopeless. No amount of failure seems to dent the forecasters’ continued enthusiasm or to persuade them to take themselves a little less seriously. The pernicious part though is that these forecasters tend to compare outcomes to the forecasts they made just days before the data release; not to those they made say a year ago, when they might have been useful to investors.

    1. Hi Rowan, thanks for reading; glad to hear you enjoyed the post. Sounds like you hit the trifecta — braai, biltong, and a sundowner … topped off with a spectacular view.

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