Process vs. results

How many times have you read that, in investing and especially in trading, it’s the process that matters. Results either follow or don’t. Since the financial markets are more or less random, one can’t control the results, only the process.

In a book that’s coming out in late September, a book that should be on everyone’s radar screen and that I’ll review later—Superforecasting by Philip E. Tetlock and Dan Gardner—the authors criticize the American intelligence community for not systematically assessing its forecasts.

“What there is instead is accountability for process: Intelligence analysts are told what they are expected to do when researching, thinking, and judging, and then held accountable to those standards. Did you consider alternative hypotheses? Did you look for contrary evidence? It’s sensible stuff, but the point of making forecasts is not to tick all the boxes on the ‘how to make forecasts’ checklist. It is to foresee what’s coming. To have accountability for process but not accuracy is like ensuring that physicians wash their hands, examine the patient, and consider all the symptoms, but never checking to see whether the treatment works.” (p. 73)

Similarly, I think that educators who teach traders and investors to focus only on process, not results, may be selling them short. Traders and investors need to learn to think probabilistically, to size trades accordingly, to make and revise forecasts in the light of new evidence. And they need to check their forecasts, including the time horizon of these forecasts, against the outcomes.

Every investor and trader forecasts, however much they may belittle the notion. Why not learn to do it better and make it a key measurable metric?