Why We Can’t Stay Silent: Predictive Guesswork Doesn’t Work

We did something unusual today: we allowed the name of a competitor or attempted competitor to escape our lips. I thought I’d take a moment to explain why.

We have long believed that the Predictive Guesswork risk methodology — where you guess what complex markets will do in response to events, and predict what securities will do as a result — is dangerous and wrong. We spoke out against it three years ago in a section of our 2019 Fearless Investing Summit keynote that you can watch here.

We draw a strong contrast between Predictive Guesswork, and our Historical Data model that only performs stress tests through the lens of actual market events with historical data, not prospective market events with guesswork.

The results could not be more clear. In the 2020 pandemic crash, the Historical Data model performed brilliantly, and unexpectedly exceeded expectations given the speed of the market snap-back.

Meanwhile, Predictive Guesswork could not have been more wrong. The worst offenders have been HiddenLevers and Rixtrema. If you look at the documented results, it would have been hard to be more wrong.

But this also leads to a bigger question: what is the POINT of a risk solution? Is it to help clients control their fear and support the advisor’s decision making process?

Or is it to amplify fear and put advisors at risk with your guesses about market disasters?

Our mission is empowering the world to invest fearlessly.

And as the market leader, we can’t stay silent and allow flawed methodology to put our profession at risk of violating its fiduciary responsibilities. That’s why we published this site about Predictive Guesswork today.

One last point, since I’ve been asked. We continue to be committed to our partnership with the Orion tech platform. 4X as many advisors have chosen Riskalyze as all other risk solutions combined, and we’ll definitely continue to invest in and deepen our integration.