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Last year, I participated in the WSJ forecasts. Given the typical Wall Street cheerleading, I (per usual) was the most bearish person on the list.
As chance would have it, our forecasts were eerily accurate. Here are the forecasts from 2007 and the actual year end numbers:
2007 Forecasts
DJIA: 13250;
S&P 500: 1475
Nasdaq: 2650;
Russell 2000: 825
10-year yield: 3.95%
2007 Actual
DJIA: 13264.82
S&P 500: 1468.36
Nasdaq: 2652.28
Russell 2000: 766.03
10-year yield: 4.03 %
Having done these forecasts for a few years now, watching the outcome over the final few days of the year reminds one how near totally random the final outcome is. As the final few days go by, the leaderboard changes day to day, almost arbitrarily. In golf, its mostly skill (with a little luck). Here that formula is reversed — a little skill keeps you in the game, but the final outcome is based on chance.
Several commentators made observations regarding these results. Here’s some very kind words via Dow Jones:
“He who lives by the crystal ball soon learns to eat ground glass,” observed the late economist Edgar Fiedler.
From the time of Cassandra through Abby Joseph Cohen, the forecasting business has never been an easy one and 2007 was no exception for financial markets. In such tumultuous years, the result is often that a few people come out looking very smart and many more are forced to eat their words.
Of course, the best way to avoid a transformation from a seer to a seersucker is to remember the adage that one should never mention a prediction and a date in the same sentence. Strategists and economists who are expected to make annual picks and index targets enjoy no such luxury, but investors are fairly forgiving. So, without further ado, let’s review the good, the bad and the ugly of 2007 and peek at 2008 . . .
Be that as it may, kudos are still in order for a strategist who hit the bull’s eye in 2007. Barry Ritholtz came eerily close to guessing the year-end S&P 500, Dow Jones Industrial Average and 10-year Treasury note’s yield on the nose at 1475, 13250 and 3.975%, respectively, and also managed to pick the best-performing large stock of the year, Mosaic Co. (MOS), which rose 336% . . .”
As I said, it is mostly dumb luck as to the final numbers.
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See also From Worst to First Second: Business Week Forecast 2007
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Sources:
Separating The Seers From The Seersuckers
By SPENCER JAKAB
A Dow Jones Newswires Column
http://www.djtopstories.com/article/0,,SB119946223624826214,00.html
So, when do we get a prediction for 2008?
The Meeting on Friday with Bush, Paulsen, Bernancke:
http://www.telegraph.co.uk/money/main.jhtml;jsessionid=BV4Y0GSJYUY2VQFIQMGCFF4AVCBQUIV0?xml=/money/2008/01/07/ccview107.xml
They are out of options at this point…..putting them up in front of a camera on friday with the “what me worry” king’s (Bush and Paulsen) sort of seals the deal that they are powerless.
Unless they can affect the housing inventory (they can’t in a million years!!) then nothing they can do will stop the decent.
Can you say emergency rate cut of 50 pts this week??? Don’t bet against it
Ciao
MS
I agree with Andrew above……what are your predictions for 2008?
Come on it’s time to do a pom-pom cheer-leading dance outside Don Luskin’s window. :)
nice work. congrats!
The forecaster is a gentle man
With neither sword nor pistol
He walks along most daintily
Because his balls are crystal
I think it is more important to see the trends rather than the exact numbers. If it were completely obvious, there wouldn’t need to be a market, would there?
You are a great trend spotter, and that is what is most valuable in your work.
Interesting — I mistakenly assumed you would have been bearish on treasuries.
With some luck and timing that was my big winner for 2007. I like to say, only half in jest, “In 2007 I made twice as much money in the bond market as I lost in the stock market.”
Seems like that happens alot I’ve found. Nobody really cares if you make money in bonds, speculating or otherwise. It’s just not exciting enough. So the stocks lure you in…
Good job, Barry!
You can beat skill, but you can never beat luck.
Congrats BR! So, um, when will your 2008 predictions be out? :)
MS – Yeah, it’s “solid economic foundation” this and “let’s not take growth for granted” that; but right now they’re pushing their ineffective tax cuts and by SOTU time it’s going to be “Econ Stimulus” package panic/PR time.
***** FIVE-STARS! Getting anything right in the finacial-biz is tough because the score keeping ain’t subjective; You either make the number(s) or ya’ don’t…Amazing – I’ve never see the big-money shops get that close.
2008 predictions? Nah.
I want year-end 2020 predictions, so I can make my investments now and free up all the time I would have spent monitoring the markets over the next 13 years.
Luck would have been to forecast very close to actual on one item. BR nailed four of them. Congratulations, and thanks for sharing with us.
Great Job. Who will be Prez. in Nov?
In 2006, Jim Cramer picks what turns out to be the best-performing SP500 stock as his stock of the year. And in 2007, Barry nails the year-ahead averages. That freakish luck aside, I hope Barry’s actual predictive powers are a measure better than Cramer’s.
“As I said, it is mostly dumb luck as to the final numbers.”
And I’d say your luck is a combination of brains, hard work, and a top-shelf bullshit detector.
Now *that* is dang impressive, Barry!
PS: Did anybody want to puke over the stupid graphic on TheStreet.com touting that Jim Cramer “called it” re recession? That jackass calls everything both ways a dozen times over. He’s always right because he’s always wrong (or visa-versa, your choice).
Media Appearance: CNBC’s Squawk on the Street (1/10/08)
This morning, I am on CNBC’s Squawk on the Street, at 10;40am. Today’s appearance is courtesy of our winning forecast in the WSJ 2007 contest, which was described as eerily close to the final tally. As I have said many times, these contests come down t…
It would be interesting to look at the sub-cohorts within the 25-54 %employed group.
One hypothesis might be that there’s been a long term trend to persuit of (and necessity for) graduate degrees to gain access to careers. This could be tested by looking at employment ratios specifically for those of typical grad school age.