Why we love predictions

"Behavioral scientists have discovered that at the core of the dislike human beings have for randomness, is an overwhelming desire to believe we are in control. "Knowing" that the S&P 500 will close at 1,450 next year gives investors that feeling of control, even though it gets us into the stock market after it has doubled."

Below you have some healthy advice about the "The Folly of Forecasting":

"Whenever you find yourself reading (or watching) someone who tells you where a stock or the markets are going, consider these factors:

- No one truly knows what tomorrow will bring. Nobody. Any and all forecasts are, at best, educated guesses.

- All prognostications are instantly stale, subject to further revision. Conditions change, new data are released, events unfold. Yesterday's prediction can be undone by tomorrow's press release.

- In order to "become right," some investors will stand by their predictions despite a stock or the market going the opposite way, hoping to be proven correct. Ned Davis called this the curse of "being right rather than making money."

Sources:

Allan Roth - 5 Financial Predictions for 2011

Barry Ritholtz - The Folly of Forecasting