Hedgehogs, Foxes, and your Financial Goals
By Conor O’Driscoll, Investment Analyst
Expert pundits are an ever-present part of the media, giving analysis and making predictions. This is especially true when discussing legacy Financial Media and News outlets. There is one problem though; when their predictions are tracked systematically, they are less accurate than throwing darts at a dartboard. In Expert Political Judgement, Philip Tetlock tracked 28,000 expert predictions across different subjects over 20 years and found their accuracy to be lower than random chance.
Further analysis shows that a key differentiator in accuracy was whether their judgement style was more like a “hedgehog” or a “fox”:
· A hedgehog uses top-down style analysis. They have a coherent, overarching theory of how the world works systematically and see events through the lens of this theory.
· Foxes are more likely to use bottoms up analysis. They view the world as too complex to be accurately captured by one theory and draw upon an eclectic variety of experiences, analysis, and frameworks.
Unsurprisingly, a nuanced, bottoms up approach resulted in greater prediction accuracy. The world is complicated and good judgement requires recognition of this and nuanced thinking. Unfortunately, this does not make for good television. The media are heavily incentivized to show hedgehog style experts at the expense of accuracy. Analysis that leverages off a single idea is easier to understand and tends to get more attention and airtime. Importantly, inaccurate pundits are never truly held accountable and thus are never forced to learn from their mistakes.
At Ascend, accurate research and analysis is of the upmost importance to us. Research and personal experience has shown us that we do our best work when we:
1. Use teamwork – by leveraging a fully stocked team with a unique set of backgrounds and experiences, we seek to ensure that no stone is left unturned.
2. Think probabilistically – by considering the full possible range of outcomes at every step of your investment plan (from your Envision ® plan to stock selection) we look to build a portfolio that is custom built to uniquely fit your risk/reward profile.
3. Demonstrate humility – by recognizing that we are human and that the world changes every day, we keep ourselves grounded in reality. This allows us to grow with experience and evolve to match changing landscapes.
An important part of humility is recognizing that predictions are not the key driver of whether you meet your financial goals. We believe key is having an investment plan that is suited to your goals and persevering with it. This has always been the foundation of our investment philosophy and it is from this central idea that we build upon.
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