A Brief Word to Forecasters: STFU!

 

 

My Sunday Washington Post Business Section column is out. This morning, we look at the annual forecasting foolishness so prevalent in the media.

By now, you know the drill: A bunch of analysts make their annual predictions, and of course, they are utterly useless. Here’s an excerpt from the column:

“It’s that time of year again when the mystics peer deep into their tea leaves, entrails and crystal balls to divine what’s ahead.

Which means it’s also time for my annual reminder: These folks cannot tell the future. Ignore them.

Most forecasters are barely familiar with what happened in the past. Based on what they say and write, it is apparent they often do not understand what is occurring here and now. Why would anyone imagine that they have the slightest clue about the future?

This is not my opinion, but a simple statistical fact: The data overwhelmingly show that the skill set of the predictive pundits is no better than a coin toss. The odd person gets these forecasts about the economy and stock markets right each year, but the lack of any sort of consistent winners and losers means that, mathematically, it is a random outcome.”

I speak with numerous experts about the subject, including:

-James O’Shaughnessy (author of the classic “What Works on Wall Street,” and CIO of O’Shaughnessy Asset Management

-Morgan Housel, a columnist for the Motley Fool

-Michael Johnston (Poseidon Financial. author of “A Visual History of Market Crash Predictions” and “The Not-So-Surprising Truth About Gold Bugs.”)

-Laszlo Birinyi (researcher and market historian)

-David Rosenberg (chief economist and strategist at Gluskin Sheff)

They name names and dates and forecasts; hilarity ensues . . .

 

Source:
Would you let a mystic manage your investment portfolio?
Barry Ritholtz
Washington Post, November 29, 2015
http://wapo.st/1PQDCVz

 

What's been said:

Discussions found on the web:
  1. willid3 commented on Nov 29

    suspect the chief market strategists are actually doing marketing. hard to sell stock and bonds if you predict that the market will tank.

    course predicting what will happen in a few hours seems fraught with error.

    never mind what the next day, week, month or year will bring.

  2. willid3 commented on Nov 29

    course some of these ‘predictions’ are just some ones ideology.

    course none of then ever seem to be punished when they fail. like the folks who predicted the end of the US economy that was supposed to happen back in September, you will notice they now predict it will be in 2016 (which of course means they will just keep changing the year when that doesnt happen) eithe

  3. marketmap commented on Nov 29

    Forecasting matters when the manager has their own “skin in the game”. If they are being compensated from salary, bonuses, client / management fees, etc. then their aren’t necessarily under pressure to “survive”.

    P.S. CXO advisory calculated a 51% accuracy in Laszlo Birinyi’s forecasts from 2001 – 2009 http://www.cxoadvisory.com/2738/individual-gurus/laszlo-birinyi/

    ~~~

    ADMIN: All the more reason to recognize he knows that forecasts are nonsense

  4. marketmap commented on Nov 29

    Also, as forecasts can to be derived from arcane, pie in the sky analysis, they can also be validated by empirical historical evidence. In the Gluskin Sheff Special Report “A “V” Shaped Recovery” ( Oct 9, 2009 ) Rosenberg cited (forecasted?) ” THE S&P 500 IS WAY AHEAD OF ITSELF
    What do we know from 60 years of historical data? We know that the market
    typically faces serious valuation constraints once it breaches the 25x P/E multiple
    threshold. The average total return a year out for the S&P 500 is -0.3% and the
    median is -6.2%. The total return is negative a year later 60% of the time, so when
    we say that there is too much growth and too much risk embedded in the equity
    market right now, we like to think that we have history on our side. “

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