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The Fortune Sellers: The Big Business of Buying and Selling Predictions

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It is often said that the number one rule of the inventing game is not to reinvent the wheel. In other words, don't put a great deal of effort, time, and money into developing a product unless you first take the time to find out if your proposed product has been already been invented.

More than one entrepreneur has been shocked to find that his or her item has already been brought to market and has been rejected by the consuming public.

The number two rule may be said to be to view your invention objectively. Relying on the opinions of friends and relatives can be fatal. The question then becomes can anyone predict if a product will be a success in the marketplace. This book examines "the big business of buying and selling predictions."

The author, William A. Sherden, is a consultant to some of the nation's largest international corporations. He has made a study of sixteen types of forecasting and has come to the conclusion that "only two--one day-ahead weather forecasts and the aging of population-can be counted on; the rest are about as reliable as the fifty-fifty odds in flipping a coin."

If one of the nation's most respected consultants has come to the conclusion that you and I are just about as accurate as the very best, how can an individual determine if his or her product will make the grade? He explores the history of seven forecasting professions. For the entrepreneur or inventor, Chapter Six, Science Fact and Fiction" is the chapter to read and reread. The chapter covers the predicting of future technologies. He cites that up until 1800 the general public had little reason to be excited by technological progress. In fact, prior to 1800 "most mills, ships, and carriages were still powered by animals, wind, and water, much as in the days of ancient Greece and Rome." It was science fiction writers, such as Jules Verne and H. G. Wells, that excited the public to the idea of predicting future technologies.

The author describes a dozen analytical tools for technology forecasting, such as S-curve, Delphi method, and Trend Analysis. He comments that "Despite their fancy names, these techniques are useless in predicting the most significant events in the evolution of technology." He further notes "...long-term technology predictions have been wrong about 80 percent of the time." Interestingly the world's largest forecaster, the Japanese government, has about the same rate of failure.

However, there is one glorious ray of hope for inventors. That is that major innovations "seem to come out of the blue." Experts are often wrong. A noted physicist, just seven years prior to the Wright brother's successful flight, expressed his opinion that only the balloon could be used for manned flight. Just before the first man-made satellite circled the earth a famous astronomer announced "space travel is utter bilge." Western Union turned down Bell's telephone patent because "The public simply cannot be trusted to handle technical communications equipment..."

Probably the greatest barrier to predicting future technology is what the author calls "situational bias." We think in terms of what already exists and think developments are only extensions of existing devices rather that the creation of a whole new field. For example, even Marconi visualized his radio as being mainly useful in areas where telephone wires could not be put up. To this day the British refer to radio as the "wireless."

The author writes that many great innovations result from combining different technologies. This also complicates any efforts to predict. Quite often it is an individual inventor that sees the possibilities of combining technologies to achieve new results rather than experts in the technologies. On the negative side an inferior product may "lock-out" a superior product if it is there first and becomes the industry standard. For example, the "QWERTY" keyboard cannot be replaced by better arrangements because of the vast number of people proficient with it.

Another caution to innovators is that commercial success can be long time coming. He notes the Battelle Institute has estimated nineteen years on the average. He points out companies "on the leading edge," are also often referred to as "on the bleeding edge."

The author makes a case for more government grants for small-scale research projects. He cites the massive space program, which is often claimed to have created many new by-products, has, in his opinion, only produced Tang!

If you read the book, will it enable you to predict your product's future? Probably not, no one can. However, it may open your eyes to some of the pitfalls even the greatest reputed "experts" make. It is an easy read, an enjoyable read, and an educational read.

The marketplace is full of purported gurus who can beat the market, and full of players who would love to know how to beat the system. In this volume William Sherden does an absolutely glorious job of debunking the trend-meisters (in weather, in population forecasting and in the sharemarket) to show us why prediction is a harder business than many of us might guess.

Peppered with supporting evidence, he shows how "fools forecasting" (tomorrow's weather will be the same as today's) has a stronger track record than the scientific weather forecasts we see each night on television. In population forecasting the standard technique of subtracting deaths from births (and adding in migration) is shown to be wonderfully accurate until...until turning points that nobody can forecast. The baby boom after WW2 was expected to last 2 years. It lasted more than a decade.

When it comes to market prediction, Sherden palpably opens up his engines of argument: full throttle. He carefully dissects various marketing picking models and shows that their successes are generally outweighed by their failures. This makes strangely entertaining but high salutary reading. The warning to readers: don't get carried away by any system - in a complex world the rules change faster than any of us learn to play the game.

Two books that would go nicely with this volume is Ellis' recently published: "Ahead of the Curve" (a market forecasting system that looks more solidly founded than others) as well as "Six Degrees" by Duncan Watts, a book that explores the volatility and randomness of the world around us.

I loved "Fortune Sellers": I loved the case studies and I enjoyed Sherden's well-researched, clear writing. He makes technical aspects of his subject very understandable without resorting to over-simplification. Well recommended.

Sherden sets out to do what no one else seems to want to -- evaluate people who make predictions based on the accuracy of their predictions. And with a few exceptions, the evaluation is very much "thumbs down."

What Sherden doesn't do is tell us why people continue to believe predictions, and why billions of dollars continue to be spent based on predictions that aren't any better than throwing darts. But that's a good topic for another book.

This book is absolutely required reading for anyone who wonders whether stock analysts or economists really know what the future holds. The answer is simple: they don't.

Sherden has written a great book with only one flaw.

He doesn't attempt to get too theoretical as to why prediction is hard. He just looks at the evidence and finds that it is so. None of the predictions that regularly fill newspapers, business books, government economic forecasts, stock-market guides are demonstrably better than tossing a coin. This is a crucially important message as the consequences of believing a duff forecast are enormous. Better to recognise the uncertainty and plan to be flexible.

I'm surprised at the negative comments from reviewers who wanted some analytical framework to deal with all this. This smacks of those who respond to uncertainty by demanding a more precise forecast. The first step for most people is to recognise how worthless forecasting is.

I work with businesses relying on forecasts and I've found Sherden's book invaluable at shifting their thinking. I don't expect Sherden to provide solutions; thats my job.

The only flaw in the book is that Sherden does not differentiate enough between the predictable and the unpredictable components of the future. There is some good thinking on this in the literature on scenario planning (but Sherden's fundamental thesis stands: most important things are not inherently predictable).

The Fortune Sellers is an extremely well researched and written book for anyone who prepares or uses forecasts. This book reviews forecasting: weather, science, stock market, population, business, and futurology. This book is essential reading for anyone who should understand the limits of predicating the future. "Make a plan, work the plan, and keep your eyes and ears open."

This is a thoroughly research and thought on the thing that wonder us most: the future and how to know it before it strikes us. Sherden goes one fortune seller to another, showing us that we actually pay to hera what we want to hear, and predictions are - mostly - not worth what they cost.
In his plain and easy to understand way, Sherden cracks many of our illusions - and, in his way, show how the fortune tellers are here much more for themselves than for us. Sherden certainly didn't make a lot of friends showing us that, but thr readers defnitly will enjoy it.

An entertaining, informative read. Sherden surveys the various fields of professional prediction (weather, finance, technology) in search of those who can predict the future accurately. You will be surprised by the track records of the various "experts" in their fields.

Mr. Sherden gives us a welcome contribution to a growing appreciation of chaotic and complex systems. I chose this book for my web site's monthly book review because of it's depth of resources and scope of disciplines addressed. The book is not a superficial debunking, and inspires a growing sensitivity to non-linear systems. Without preaching or whining, this book helps us take an openminded approach to the inherent power and limits of prognostication.

The most enjoyable aspect of this book is the way in which Sherden reveals overpaid, self-important 'gurus' like Paul Ehrlich, Alvin Toffler, John Naisbitt, and Faith Popcorn (real name: Plotkin) to be little more than modern-day charlatans. Whether in the field of long-range weather forecasts, earthquake prediction, stock market upheavals, or the course of technological change, Sherden demonstrates that most futurologists do less well than a coin-flipping average. The only ones who avoid being thoroughly embarrassed by reality are those who make 'predictions' that are so vague they can be construed as meaning, well, anything at all (Nostrodamus was the past master at this, but Toffler is right up there too). Significantly, futurologists missed such key events as the advent of the PC, the rise of the Internet, and the collapse of communism. Sherden does not deny that there are ebbs and flows in the course of human events, but that is a long way from the detailed forecasts that pseudo-scientific groups such as the Club of Rome have made in the past -- and which have since caught up with them. Sherden notes that Winston Churchill (who once dabbled in futurology himself) concluded that the future was "just one damn thing after another" -- which pretty well sums it up, when you think about it. Perhaps what Sherden should look at next is astrology and the various strains of New Age futurology. He says he has no plans to write such a book but no-one, of course, can predict the future.

Forecasting or predicting the future is the 2nd oldest profession. It is now a multi billion dollar business.

The author examines about every major field where forecasting is used:

1. Weather
2. Economics
3. Stock market
4. Population sustainability
5. Scientific advances
6. Futurists
7. Corporate predictions

Interestingly enough, the largest number of people in any of these 7 forecasting groups is the 200,000 people who do financial advising....involving trillions in assets. Weather forecasting only has about 6,000 people......but it is a $5B business.

The author contends the $200B spent every year on forecasting is wasted money.

The author submits evidence that financial newsletters are worthless with regards to predicting profitable investments in the future. He also correctly points out that active mutual fund managers can not beat the plain stock market indexes. He covers bubbles including MacKay's Madness of Crowds and the Tulip Bubble.

The author also contends that most superior innovations are made by combining different technologies. This reminds me of a Russian company I ran into around 1992. This Russian company said the Russian government did a study of all patents issued, and concluded all patents are a combination of about only 1200 basic ideas. Their business model was to include all 1200 basis ideas in software, and then problem solvers could let the software combine the 1200 ideas into an ideal solution. Unfortunately, the software I tried had too many bugs to get any practical use out of it.

Predicting the future can be hazardous to your health as well. In 1956, RCA predicted there would only be 200,000 computers world-wide by the year 2000.

In the 1970's, GE led the way in terms of utilizing corporate strategic planners.......with a staff of 193 planners. When the Japanese threatened to take over the business world in the 1980's, corporations abolished their strategic planning departments. Jack Welch of GE disbanded their corporate planning department.

The author suggests that companies should quit trying to plan for the future.......and instead empower their employees and train them to adapt to changing circumstances........analogous to the US military on D-Day. The Americans at the working level on the ground adapted and overcame obstacles. The Germans relied on a rigid central command structure with no empowerment of the troops at the scene of the action.

The author suggests 5 key questions you should ask whenever you are trying to assess the credibility of a forecast:

1. Is the forecast based upon hard science?
2. How sound are the methods used to make projections?
3. Does the forecaster have credible credentials?
4. Does the forecaster have a proven track record?
5. To what extent is my belief in a particular forecast influenced by my own personal beliefs and wishful thinking?

The author's 5th question reminds me of something I learned about consultants while in MBA School. If you are a consultant, your first job is to figure out who the decision maker is that pays your bill. Your second job is to figure out what answer the decision maker wants you to arrive at........then manipulate the data to arrive at the right answer!

All in all, an interesting and thought provoking read.


In this age of full disclosure, it can be noted that I am the author and publisher of the book INDEX MUTUAL FUNDS: HOW TO SIMPLIFY YOUR LIFE AND BEAT THE PROS. This book is an introduction to the concept of index funds is and is sold on Amazon. I am also a contributing author to the book THE BOGLEHEADS GUIDE TO RETIREMENT PLANNING available from Amazon with an estimated release date of October 2009. I have also written 21 short stories on investing which are also available on Amazon.

If you want practical ideas on long term passive investing, read some of the books below:


The Richest Man in Babylon
Bogle on Mutual Funds: New Perspectives for the Intelligent Investor
The Millionaire Next Door
The Four Pillars of Investing: Lessons for Building a Winning Portfolio
A Random Walk Down Wall Street: The Time-Tested Strategy for Successful Investing, Ninth Edition
The Coffeehouse Investor: How to Build Wealth, Ignore Wall Street, and Get On With Your Life
The Bogleheads' Guide to Investing