It's Not the How or the What but the Who

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So Sure, but So Wrong

For several years, professors at Duke University asked CFOs of large American companies to estimate the return of the S&P index over the twelve months to come.¹ Realizing how hard it is—even for seasoned professionals—to make such a prediction, the researchers also asked the CFOs to offer an “80 percent confidence interval” (that is, the range of returns they would expect with 80 percent probability) as wide as they wanted. By definition, you would expect only 20 percent of surprises. But, when the results came in the following year, a full 67 percent of the actual returns fell out of the CFOs’ expected ranges.

We’re not talking about amateur individual investors but about some of the world’s most successful financial ...