Eric Schmidt of Google Can’t Predict the Stock Market

From Eric Schmidt Google’s CEO:

“There are many, many things that Google could do, that we chose not to do.”

He added:

“One day we had a conversation where we figured we could just try to predict the stock market. And then we decided it was illegal. So we stopped doing that.”

Google is a great search engine. It won the title of search king and Schmidt has made a fortune. Congratulations. However, when he says stuff like this it makes everyone with a pulse think he was just a lucky idiot.

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6 comments on “Eric Schmidt of Google Can’t Predict the Stock Market
  1. Patrick says:

    Taking aside “can we predict stock market” mumbo-jumbo horseshit, does it mean then that snooping personal data is not illegal?!?

  2. DGDye says:

    Michael,

    Pick up a copy of “Future Babble: Why Expert Predictions Fail – And Why We Believe them Anyway”

    It’s a new book from Dan Gardner of the University of Toronto. It’s right up your alley.

    Not to give away the ending, but “experts” actually performed worse than random chance in predicting economic outcomes.

    Surprised?

  3. Fred says:

    DGDye:

    Seems like my kind of book but there are no ratings on Amazon.com. Care to rate it for us?

  4. Blue Horseshoe says:

    It is a funny read when repected people put foot in mouth on topics outside their field. Nevertheless, Google has the best goods on what the mass of human cattle called humanity is probably thinking – and how the particular concept is trending. Check this out for an example. What is the trend on “trend following” and some related terms:

    http://www.google.com/insights/search/#q=trend%20following%2Cmanaged%20futures%2Cefficient%20markets&cmpt=q

    Very nice and the trends graph indeed makes some predictions of sorts out to 2011. I wonder though if Schmidt really believes seasonal adjustment prediction algorithms can take years of seasonal prices and “LTCM” the correct future prices.

    I find his remark very funny indeed, on several levels. The illegal part of it might not be what Schmidt thinks it is or seems to be implying. The illegality is probably closer to failure of fiduciary duty to Google than to to breaking some SEC inside information covenant about the stock price performance of other companies.

  5. DGDye says:

    Fred,

    Here’s a brief description and my interpretation of “Future Babble” by Dan Gardner:

    The book is funny and well-researched. Gardner says that often the first person we fool is ourselves.

    In a nutshell he argues — with tons of empirical evidence — that our “primitive” brain overrides our logical one and we perceive and make decisions accordingly. This view is, of course, not news to anyone who honestly makes their living from trendfollowing. For without this irrationality extended to the markets our results would be somewhat curtailed.

    And to compound mankind’s gross perception errors, we rely on those people who are blinded by their own expertise in a given subject…the “experts.” There’s some fascinating research in the book that shows that experts who had an open mind did OK (slightly better than random), but those with the strongest opinions did horribly (well below random) in their predictions. And unfortunately, who are we most likely to listen to? People are programmed to want definite answers and will bend their logical brains to the point of breaking in order to accommodate certainty in an uncertain world.

    And to bring the topic around to trend following…you often read criticism of Michael’s books that he, “Doesn’t tell me specifically how to trade.” These people are desperate for certainty. They want someone to tell them what to invest in and when to get out….and all with no risk or drawdowns. So they tune into Cramer religiously to get actual recommendations that may or may not make any sense whatsoever to their own financial circumstances…and all without any concept of money management or exit strategy. They believe Cramer because he screams at them with certainty and reduces all the complexities of the market into a cartoon bull and/or bear.

    All in all, I loved this book and highly recommend it. 4 stars (not 5 because I’m picky and there were a couple dry sections).

  6. Fred says:

    Thanks DGDye. I ordered the book plus Dan’s other one – Risk.

    Fred

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