Professor’s Price Predictions
Trapped in a time capsule
Four minutes into my live CNBC interview, the host Melissa Lee asked the question I was dying to answer.
“Professor Quinn, you are an expert on the stock market price action. Our viewers are always interested in your latest work. Are you working on anything interesting that you would like to share today?” She asked.
I leaned back and smiled. “Yes, I do.” I adjusted my tie before launching into my favorite topic. “For the last couple of years, I have been working on a financial model that can predict individual stock movement six months into the future. It takes into account what’s happening at the macro level as well as what’s happening at the individual stock level. After several months of backtesting, I can now say my model is ninety-nine percent accurate.”
“Wow, that’s impressive,” she said.
“Yes, if you give me ten stocks, I can predict which ones will go up six months from now.”
She smiled and asked, “Care to make it interesting?”
“What do you mean?”
“I’ll give you a sheet of paper with ten stock tickers. You run them through your model and mark the ones that will go up. You place that sheet in a time capsule and seal it. We’ll open it six months from now on a live CNBC show… what do you say?”
It caught me off guard. I smiled weakly and touched the back of my head nervously. When I realized millions were watching me, I gave the only acceptable answer: "Of course, let’s do it!”
Five months after that interview, I called Mark, my close friend, and a stock market wizard.
“Mark, do you remember the stock price challenge I entered with CNBC?” My voice quivered.
“Oh yes, and let me guess. You’re losing that challenge, aren’t you?”
“Very badly. My model predicted seven stocks to go up. After five months, they all are down twenty percent! And everything points to more loss.”
“What happened?”
“Not sure… and I don’t care now. A month from now, that capsule will be opened and my reputation will be ruined. How can I fix it?”
“It’s not like you can open the capsule now and change your predictions.”
“No way.”
Mark was silent. And then he said calmly, “Well, you have a simple solution… your reputation. Use it.”
“What do you mean?”
“You have a stellar reputation. People value your opinions very highly. I’ll bet they would also value your price predictions highly.”
“So?”
“Leak your predictions. Make it look like an accident. That’s all you have to do.”
“My god!”
“Yes. Once leaked, it’ll spread like wildfire. Everyone would like to get their hands on those seven stocks. Their price will go through the roof in no time!”
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