Why Do Forecasters Keep Forecasting?

Firm / S&P 500 Target / Missed it by this much (%, as of 12.10.2013)

• Wells Fargo / 1,390 / 29.7%
• UBS / 1,425 / 26.5%
• Morgan Stanley / 1,434 / 25.7%
• Deutsche Bank / 1,500 / 20.2%
• Barclays / 1,525 / 18.2%
• Credit Suisse / 1,550 / 16.3%
• HSBC / 1,560 / 15.6%
• Jefferies / 1,565 / 15.2%
• Goldman Sachs / 1,575 / 14.5%
• BMO Capital / 1,575 / 14.5%
• JP Morgan / 1,580 / 14.1%
• Oppenheimer / 1,585 / 13.8%
• BofA Merrill Lynch / 1,600 / 12.7%
• Citi / 1,615 / 11.6%
• AVERAGE / 1,534 / 17.5%
• MEDIAN / 1,560 / 15.6%

Source: Above the Market

“He who lives by the crystal ball soon learns to eat ground glass.”

–Edgar Fiedler

Its that time of year again! All of your favorite prognosticators will soon be trotting out their favorite (albeit worthless) prognostications. You are advised to ignore them with extreme prejudice.

This has been a peeve of mine for quite some time, going back to “The Folly of Forecasting” and, more recently, “Get ahead of forecaster folly.” I was reminded of this courtesy of a commentary by Robert Seawright, chief information officer of Madison Avenue Securities. It had the delightful tongue-in-cheek title, “Missed It By *This* Much.”

Seawright notes that the “one forecast that is almost certain to be correct is that market forecasts are almost certain to be wrong.” His table, which I have reproduced here, reveals just how true that was for S&P 500 predictions in 2013. As of yesterday, the best of the major broker forecasts was only off by about 12 percent, the worst by 30 percent. All told the seers’ average miss was a full 17.5 percent.

Continues here