Why the past looks obvious

Pick any well-known market event of the last few decades. Read what was published in the eighteen months before it.

You will find people who called it, and they will be quoted extensively. You will also find, if you look at the same publications rather than the curated list, that they were surrounded by people calling the opposite, and that the two groups were about the same size and roughly as confident as each other.

The event looks inevitable now. At the time it was a disagreement.

Two things happening at once

The past looks obvious for two separate reasons, and they need different corrections.

Hindsight is the rewriting of your own earlier state. You knew it, roughly, in retrospect. This one is about memory.

Selection is what happens to the record. The people who were right get quoted, reprinted and invited back; the people who were wrong are not re-published, and often quietly stop mentioning it. So the surviving commentary about any past period is systematically more accurate than the commentary actually available at the time.

Put together, these two produce a past that appears far more legible than the present, which then makes the present feel uniquely uncertain and confusing. It is not. It is the only period you are seeing unedited.

Predict

Someone was correct about a large market move, publicly and in advance. What does that establish?

Choose one answer

That they understood something others did notAlmost nothing on its own — it depends on how many predictions they made and how many people were predictingThat they will probably be right againThat the move was predictable, since somebody predicted it

Lock in answer

What the rewriting costs

This is not merely an interesting quirk of memory. It has three consequences that cost money.

It makes past decisions look worse than they were. A choice that was reasonable under genuine uncertainty gets reviewed by a person who now knows the answer, and looks negligent. That review teaches the wrong lesson, and teaches it convincingly.

It makes the future feel more knowable than it is. If the past was legible, the present ought to be too, so the failure to see clearly now reads as a personal deficiency rather than as the normal condition. That gap is exactly where someone selling certainty finds their customers.

It destroys the record you would need to calibrate. Since your memory of what you believed is edited to match what happened, you cannot assess your own forecasting by remembering. The only defence is to have written it down, and almost nobody has.

Not the same thing

Predictable in advance

The information needed to see it was available, and a method would have found it.

Measured in

Whether the same method works on later periods it has not seen

For example

A rule that flags a condition, tested on data from after the rule was written.

Chase it alone and

Genuinely predictable things get acted on and stop being predictable, which is why the durable examples are so scarce.

Explicable in retrospect

A coherent story can be told afterwards about why it had to happen.

Measured in

How satisfying the story is, which is not a measure of anything

For example

An account of a crash naming three causes, written after the crash.

Chase it alone and

A story can be constructed for any outcome, including the opposite one, so its existence carries no information about whether it was foreseeable.

Which is which? Put each one on a side.

• A rule written in 2010 and tested only on data from 2015 onwards

  Predictable in advanceExplicable in retrospect

• An explanation of last year's move, published this year, that fits it perfectly

  Predictable in advanceExplicable in retrospect

• A strategy tuned until it would have performed well over the last twenty years

  Predictable in advanceExplicable in retrospect

The narrative problem underneath

There is a deeper version of this, and it is worth stating even though it is uncomfortable.

Human beings understand sequences of events through stories, and a story requires causes. So any account of what happened will contain causes, whether or not causes were present. A period in which prices moved for no reconstructable reason cannot be told as a story, so it does not get told — it gets a reason attached and then it can be.

This means the supply of explanations is not limited by the supply of explicable events. It is limited by the demand for explanations, which is enormous and constant. Every day something moves and every day somebody explains why, at the same rate regardless of whether the day contained anything explicable.

Check

What is the practical defence against hindsight, given that the rewriting is not detectable from inside?

Choose one answer

Being humble about the pastWriting down what you expect, with dates, before the outcome existsReading contemporaneous accounts rather than later summariesAssuming the past was mostly luck

Check answer

›Why a strategy tested on the past is a weaker claim than it looksOptional

Anything can be tuned to fit a known series. Enough parameters and enough attempts will produce a rule that would have performed beautifully over any particular stretch of history, and the tuning is often done in good faith by someone who genuinely believes they are discovering a pattern.

The test that separates a discovery from a fit is whether the rule was fixed before the data it is judged on existed. That is a hard test to pass and an easy one to accidentally fail, because a rule adjusted twice after seeing the results has been fitted even if no single adjustment felt like fitting.

Track 12 returns to this from the other side: it is what makes a performance record so easy to construct and so difficult to interpret.

Worth remembering

• Once an outcome is known, the memory of your earlier uncertainty is rewritten, and the rewrite is indistinguishable from recall.
• Selection edits the surviving record too: correct calls get reprinted and incorrect ones quietly disappear.
• Together these make the past look far more legible than the present, which makes normal uncertainty feel like a personal failing.
• A correct prediction says little without knowing how many predictions were made and by how many people.
• An explanation can be constructed for any outcome, so its existence is not evidence that the event was foreseeable.