Monthly Archives: July 2010

Pet Names and the Stock Market

Pet NamesWhen I was young my house was always full of animals.  Our pets included the traditional cats and dogs, but at times the lineup also featured gerbils, turtles, snakes, frogs, anoles (which we called “chameleons”), fish (including my favorite Siamese Fighting Fish), ducks, iguanas, spiders, owls and for a while even a rabid skunk (it was in our backyard shed until the authorities came to take it away).  At least half of the fun was naming these critters.  I once had three cats at the same time – “Thomas Jefferson Cat” (he was a “tom” cat, natch), “Sy” (a Siamese cat, of course) and “Junior” (the smallest of the three).  Our longest living pet was “Mimi,” a perky little peekapoo, who was really just like one of the kids.  Another favorite dog was “Fida.”  My brother named her by simply (and brilliantly, in my opinion), deriving the feminine version of “Fido,” one of the most common of dog names.

During my college years, a group of my friends and I collectively picked up the moniker “The Dogs.”  The reason for this is really a long story that I will not share at this time, but let it suffice that we were proud of the name and even felt compelled to give each one of us dog names.  I ended up with “Fang” as my nickname, no doubt due to my temperament and biting wit…

In my married years, due to numerous allergies and my wife’s aversion to any kind of critters in the house, our only pet has been a painted box turtle, named “Squirtle,” who lasted about 2 weeks with us.

Sometimes I meet people whose pets have names that to me don’t really sound like pet names.  One friend had a dog named “Chloe.”  Another one’s dog was “Molly.”  At least names that end in the “ee” sound roll off the tongue nicely when you call them.  My boss has two dogs named “Fred” and “Rose.”  I’m sure they’re wonderful, lovely pets, but to my ear, their names sound like they should belong to the neighbors in some TV sitcom.

That brings us to another famous pet with an unusual name, Paul the octopus.  For those who watched any World Cup soccer games this year, you might know about Paul.  Like most cephalopods, he is intelligent (for an invertebrate, anyway), but unlike most of his kind, he can (according to the news reports) predict the outcome of soccer games.  Paul was credited with “predicting” 12 out of 14 World Cup matches, and 8 matches in a row, including the final.  Before each game, Paul would be shown two containers holding his favorite food, each one marked with the national flag of each competitor.  Paul received death threats when he chose his home country (Germany) to lose to Spain in the semi-final game.   Spain won, and Paul became famous.

Anyone with a little statistics under their belt can tell you that calling 8 soccer matches in a row is just like flipping a coin and having it come up “heads” 8 times in a row.  It’s a rare thing, but not a miracle.  In fact, the odds are 1/256 or 0.39%.  Rare?  Yes.  Newsworthy? Perhaps.  Can he really predict games?  Sadly, no.

David Miller, my stats professor at Columbia University, always told us that miracles were things with very low probabilities that actually happened.  He always tried to help us put events into perspective.  Odds of being hit by lightning? 576,000 to 1.  Odds of becoming a pro athlete?  22,000 to 1.  Odds of getting a hole in one?  5,000 to 1.  Odds of being audited by the IRS?  175 to 1.  And so on…

The outcome of any sporting match depends on an incredibly complex series of factors.  Trained professionals spend thousands of man-hours trying to predict of each game.  Yet, the results often mimic that of a coin toss.  Thus anyone, even someone who knows absolutely nothing about a sport, could possibly “predict” correctly the outcome of 8 games in a row.  Does this result make that person a sports guru?  Clearly not.

Yet, sometimes in the stock market (you knew there’d be a tie-in, didn’t you?), we impute virtue and talent to some people who might just be lucky.  Rarely (never?) does some “expert” appear on a broadcast with his or her latest mighty forecast and then discloses all of his or her past predictions and how they fared.  The markets are complex, but most of us want simple answers and solutions.  Many “experts” have appeared to fill this need.  Every decade throws another guru up the pop charts because of an “amazing” prediction that came true.  Rarely (never?) do these one-hit wonders recapture the glow of those peak moments.  The markets are too complicated.  The prediction business is too fraught with uncertainty to rely on the predictions of any one person for long.

This is why I don’t make predictions.  Not that I can’t (I used to get paid to make them), but I don’t think it’s what I’m best at.  I spend my time measuring value, assessing the risk profile of portfolios and matching appropriate investments to clients’ risk tolerances.  Even these activities contain a great deal of uncertainty, but compared to the prediction business, it’s much less random.  And fun, in my opinion.