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  • Writer's pictureWilliam Webster

Fact or fiction?

Updated: Jan 15

Forward looking projections ask us to look into the future. Their uses are varied and range from planning and risk to investment and speculation. We try to eliminate guesswork by using a model. It contains the inputs and algorithms to provide answers. Subjectivity often abounds. The inputs are frequently estimates they include correlations and behaviour. However adding more and more moving parts is fashionable. It creates spurious accuracy and makes challenge harder. Uncomfortable truths are hidden.

They include:

  1. KISS. It’s better to be approximately right than precisely wrong;

  2. Unknown unknowns. Beyond the very short term things go wrong;

  3. Back solving. The answers you want build the model;

  4. Unobservables. Fudge the result.

Let’s be clear projections give us some feel of the issues involved. But they are not facts. They help (when taken with a pinch of salt) in assessing value, risk and future contingencies. They provide some of the analysis as to whether you are on the right track. No more than this. Next time you are told about the future as if it’s a fact you are being misled.

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