Comment BUT...my model is better than YOUR model! (Score 1) 676
The point the author may be missing here is that in a competitive environment such as financial models, the goal is not necessarily to model the market but to make a model better than everyone else's model. Consider sports, where you have a "spread". If I can model a sport and generate a better spread than the one being generated by the Vegas model, I win. If I can't, I lose. Stocks are very much the same thing, where the price of a company represents the "spread" of future earnings and I need a model that is better than everyone else's model in order to win $$$.
As Einstein might have said, the quality of your model is relative to what you are comparing it to. If you compare it to perfection (actual data), surely any model will be less than perfect. But compared to OTHER models, it may be excellent. The article doesn't really quantitize what is meant by "really bad predictions" going forward so its hard to judge his findings anyway. If its wrong more than half the time, that's probably a bad model. Was it? Or is he calling 75% "really bad"?