What Investors Need to Know About Historical Data

"A man with one foot in a bucket of ice and the other foot in a bed of hot coals is, on average, very comfortable."

In the most recent Barron's, Michael Santoli took a look at one of my favorite pet peeves: The use and abuse of market data. His column, titled The Limits of History , observed that as the markets have become more volatile of late, the misuse of data has increased:

People who try to handicap the markets for a living practice the art of the plausible. Many trudge from conference room to lunch table to banquet hall lugging PowerPoint decks full of unobjectionable statistical touchstones for commission-wielding clients. At times of investor confusion and market dissonance, such as now, their art is often reduced to carving a slice out of economic history that ratifies their existing outlook.

Mike then proceeds to look at a "dog's breakfast of the kinds of historical analogies making the rounds" and he notes that it seems that for every study which proclaims "Each time X happens, Y has occurred" there is an equal and opposite study incontrovertibly proving that "Y" will not occur. Pick you poison: Since "X" occurred, then we will definitely have/avoid a recession; Stocks are grossly undervalued/overvalued; Markets must rally/fall.

What's an investor to do? ...