Smart People can be Wrong

[bgates]

Some excerpts:
“Lee DeForest has said in many newspapers and over his signature that it would be possible to transmit the human voice across the Atlantic before many years. Based on these absurd and deliberately misleading statements, the misguided public … has been persuaded to purchase stock in his company …” — a U.S. District Attorney, prosecuting American inventor Lee DeForest for selling stock fraudulently through the mail for his Radio Telephone Company in 1913.

“To place a man in a multi-stage rocket and project him into the controlling gravitational field of the moon where the passengers can make scientific observations, perhaps land alive, and then return to earth – all that constitutes a wild dream worthy of Jules Verne. I am bold enough to say that such a man-made voyage will never occur regardless of all future advances.” — Lee DeForest, American radio pioneer and inventor of the vacuum tube, in 1926.

“Heavier-than-air flying machines are impossible.” — Lord Kelvin, British mathematician and physicist, president of the British Royal Society, 1895.

“A rocket will never be able to leave the Earth’s atmosphere.” — New York Times, 1936.

“There is no likelihood man can ever tap the power of the atom.” — Robert Millikan, American physicist and Nobel Prize winner, 1923.

“Fooling around with alternating current is just a waste of time. Nobody will use it, ever.” — Thomas Edison, American inventor, 1889 (Edison often ridiculed the arguments of competitor George Westinghouse for AC power).

“That virus is a pussycat.” -– Dr. Peter Duesberg, molecular-biology professor at U.C. Berkeley, on HIV, 1988.

“The death rate will increase until at least 100-200 million people per year will be starving to death during the next ten years.” — Paul Ralph Ehrlich, 1970.
—-
The next time you want to assert you know with absolute certainty what’s going to happen in the future, ask yourself, “Do I know my subject better than these guys knew theirs?”

[barnaby33]

Ok, ok, I get it. Smart people can be wrong. Now what about the rest of us?

Josh

[LookoutBelow]

Smart people by definition are NOT people who commonly make bad decision and being wrong.

This is “Orwellian” doublethink and or Black/White.

[Bugs]

As far as I can tell, nobody here has ever made any predictions about the limitations of technology.

You do bring up an excellent question, though:

“The next time you want to assert you know with absolute certainty what’s going to happen in the future, ask yourself, “Do I know my subject better than these guys knew theirs?”

You possibly should have asked the bulls this excellent question when they were making their wild and unsupportable predictions up until just a year ago.

[Diego Mamani]

Excellent post bgates! A dose of humility certainly benefits all, but especially bloggers who routinely claim 20/20 foresight.

[Anonymous]

Smart People can be Wrong

Has it crossed your mind that the ‘smart people’ were the one’s touting real estate as being an asset class that has never lost value that might be wrong.

Or was it the “smart guy” Federal Reserve Chairman Alan Greenspan who stated people are better off with adjustable rate mortgages over a 5.25% 30 year fixed rate loan who definitely was wrong.

All investments go in cyles. Trees don’t grow to the sky.

I still beleive that Real Estate is an incredible investment because of its tax advantages and inflation protection, but we have now entered a cyclical downturn.

[vcguy_10]

Has it crossed your mind that the ‘smart people’ were the one’s touting real estate as being an asset class that has never lost value that might be wrong.

I never considered them smart. They are just sales people (realtors, mortgage bankers) or their spokespeople (Lereah) looking after their own interests.

Or was it the “smart guy” Federal Reserve Chairman Alan Greenspan who stated people are better off with adjustable rate mortgages over a 5.25% 30 year fixed rate loan who definitely was wrong.

All Greenspan said is that if you’re going to live in a house for less than 5 years, then you’re better off with an adjustable mortgage that resets not earlier than 5 years. For young professionals who work in industries with high labor turnover (high tech, pharmaceuticals), this advice is actually smart.

I agree with you that the RE market is cyclical, that it probably peaked in 2005, that this last peak was unusually high by many measures, and that we are about to enter a downturn that may last many years. The point of this thread is that, as reasonable as I think my observations are, I may still be wrong.

[technovelist]

I don’t agree that “if you’re going to live in a house for less than 5 years, then you’re better off with an adjustable mortgage that resets not earlier than 5 years.” There is no way on earth that anyone can guarantee that you will be able to sell the house when you are planning to.

If you’re planning to live in a house for less than 5 years, you should rent rather than buy.

[Raybyrnes]

I am surprised by this broad generalization that if you are planning to live in a place less than 5 years you should rent. I might have become accostomed to the people on this forum focusing on running the numbers and making an educated decison based on a combination of quantitative and qualitative factors. This type confirmation bias limits your ability to process all the data available. It is like saying you ar always better to buy term life than whole life or to pay cash for a car rather than finance or lease. In all circumstances each decision might vary based on that particular buyers needs and each decision might equally maximize the value of the transaction.

[vcguy_10]

Ray: I agree with you. Techno: I think you missed my point. Buying and holding a house for 5 years may or may not be a good idea; there are financial and sujective criteria to consider, and the point of my post was not to recommend one option over the other.

Instead, the point made by Greenspan and others is that if (for whatever reason, right or wrong) you decide to buy and hold for less than 5 years, then you’re better off with an ARM that doesn’t reset before those 5 years are up.

Such recommendation is essentially based on actual purchase patterns: it can’t be denied that a sizable percentage of homeowners relocate every 4 to 7 years. Whether that’s advisable or not, is of course a different matter altogether.

[PD]

Buying real estate NOW is not smart. Buying real estate four years ago was very smart. Getting an ARM NOW is not smart because we are entering a down cycle and it increases your risk because adjustments may force a sale at a loss. Getting an ARM four years ago was neither smart nor stupid. It depended very much on your situation.

Renting is the smart play for 2006 – 2008. Beyond that, it might be smart to buy again.

[bgates]

Fascinating.

I didn’t provide much context here, but my initial post was in reaction to another thread started by a commenter who characterized anyone who disagreed with her as to the extent and timing of the correction as ‘delusional’, and stated that anyone who held another opinion must be motivated by some combination of greed, fear, and jealousy (of what I’m not sure – her intellect?)

I don’t post much, so I wouldn’t expect anyone to know my expectations for the housing market. For the record, I wouldn’t be at all surprised by a 30% correction by 2010. It’s just that I get annoyed by the attitude of, “I’m mystified as to why you mouth-breathing troglodytes are bothered by my 100% guaranteed, obviously correct predictions of housing prices several years in the future. You would recognize my wisdom if it weren’t for your own vanity.”

Anyway, that’s my position, and the little back story behind my post. I think it’s funny that two of the responses to my post about the dangers of making assumptions themselves assumed – incorrectly – that I’m bullish about the market.

[technovelist]

My point was that since you cannot know with certainty that you will be able to sell before your ARM resets, it is very hazardous to assume that you will be able to do so, regardless of your intention to do so.

To take your examples: Leasing a car makes sense only if it is a deductible business expense. Financing a purchase makes sense if you get a favorable rate.

As for the life insurance example, it always is better to buy term than whole life, with the very rare exception that if you have a very large estate, there can be estate planning reasons to buy whole life at very advanced ages when term is not available. And even this exception will probably go away if they get rid of the death tax.

By the way, I do know something about life insurance, having passed a couple of the actuarial exams many years ago.

[davelj]

bgates, for what it’s worth (which isn’t much), I’m in 100% agreement.

[Nancy_s soothsayer]

If the gist of this thread is to personally attack those who make bold predictions, then I totally disagree with the mean intent.

I admire those people who stick their necks out and make their strong opinions/predictions heard. If we live in a world dominated by “chickens” and cowards, how boring and backward the world would be.

A few seem to speak from both sides of their mouths like some slick politicians with long verbose paragraphs. I get frustrated reading their long posts but essentially NOTHING was really said. They say, “on the one hand, blah..blah.. and then, on the other hand, blah..blah.. and then NOTHING. No strong or bold preditions, conclusions, or opinions to separate them from the mundane or mediocre. Then they have the gall to criticize those who do.

“The right side of the fence is this and the left side of the fence is that, but I am so superior I can point that out. Meanwhile, I am sitting pretty stuck on the fence.

“This is white, this is black and I am so smart I know the difference. Personally I will stick with the gray area because I am chicken and I might get slammed if I have a strong opinion.”

Get over it.

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