Barry Ritholtz, Columnist

Beware of Data Mining

It doesn't work in forecasting elections. Why should it work for your money?

November 23, 2016 at 6:15 PM UTC

Barry Ritholtz is a former Bloomberg Opinion columnist. He is chairman and chief investment officer of Ritholtz Wealth Management, and was previously chief market strategist at Maxim Group. He is the author of “Bailout Nation.”

Maybe he saw it coming.
Photographer: Michael Nagle/Bloomberg

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I keep promising to stop writing about lessons from the election that are applicable to markets, and then I keep finding more examples. So rather than make any promises I cannot keep, let’s just jump right into this.

Since Donald Trump’s surprise victory -- though it wasn’t a surprise to those of you with the power of hindsight -- there have been numerous after-the-fact explanations for why Trump beat Hillary Clinton. Many appear to be delightful exercises in data mining, the finding of “historical patterns that are driven by random, not real, relationships.” Add to this the assumption that these explanations are durable and will repeat in the future, and you have the makings of a terrible investment process.