Hi Guys,
Forecasts proliferate each January. It is a natural time to make annual forecasts. These forecasts have about as much credibility as the largely discredited January Effect rule. The forecasting record closely resembles a fair coin toss. Some "experts" score an above average accuracy of over 60% correct, but many others are much below a 50% coin toss probability.
Here is a Link,to an article that summarizes the records of a host of forecasters:
http://www.cbsnews.com/news/who-are-the-most-least-accurate-stock-gurus/The record does not inspire confidence. The referenced article is only an incomplete summary of the extensive work performed by CXO Advisory. Unfortunately, CXO stopped this worthwhile task in 2012, so an update is not available. I doubt if the situation has changed much. If you are so motivated, here is a Link to the final report on the CXO Advisory Guru Grades study:
https://www.cxoadvisory.com/gurus/The complete study shows a rather normal distribution of prediction scoring success. Some guys were much better than others at the forecasting game. Identifying this small elite group provides a useful service to us amateur investors. Too, too bad the effort was aborted.
Long, long ago in the dark ages, my investments were somewhat guided by the Dines letter. Harry Dines has been making and publishing market forecasts since the early 1960s. He has survived this long period even though his record is no better than that proverbial fair coin toss. Many of our heroes have feet of clay when an honest forecast accounting is conducted.
I recognize that I bore you folks with my constant claim that forecasters can't forecast. I do not apologize for my repetitions. Given the popularity of many forecasters, the repititions are a cautionary alert.
Best Regards.
Comments
Nick de Peyster
Undervalued Stocks
I agree that some fraction, perhaps even a major fraction, of those on the successful investor list made that list because of chance. Luck is always a factor when investing. But some poorly defined portion of the successful investor list is populated by truly talented investors. Guys like Soros and Buffett and Munger come to mind. Time helps to define this group.
It is not obvious who these guys will be before a long term historical success record is established. However, even when that record is established, risk remains since those conditions that contributed to the success might well have changed, and the successful investor might not change in lockstep.
Investing success is never a given, never an easy task.
As Warren Buffett remarked: In financial matters, "... the rear view mirror is always clearer than the windshield". Using earlier superior performance data to project future superior performance might increase the profit odds a little, but it surely is not guaranteed.
Thank you for your meaningful observation. We are on the same page here.
Best Wishes.
Experts Forecast Long-Term Stock and Bond Returns: 2017 Edition
http://news.morningstar.com/articlenet/article.aspx?id=787927
I especially liked this post by BooBooBear in the comment section:
Dangerous words:
"I'm from the government and I'm here to help."
"It's different this time."
"Experts forecast..."
(Fill in the blank and take your pick of choices.)
Thank you for your Link that summarizes longer term market projections from a formidable array of powerhouse financial organizations. Not all so called experts are really expert, but these guys merit that designation.
I especially liked your recognition of the potential for exert's biases as noted by one of the commenters who contributed to the article. For me, there is a lesson here since I often don't read most of the comments section. I plan to be more diligent in the future.
Note how the forecasts centered around historical returns. That's not a bad projection point of departure. Knowledge of market history is essential when trying to estimate future possibilities. A reversion to the mean is a powerful market force.
Expecting precise short term forecasts is highly unlikely, but does provide some entertainment value and encourages active debate.
Thanks again and Best Wishes.
© 2007-2017 Oaktree Capital Management, L.P. All rights reserved
In his memo, Howard Marks examines the precision of so-called "Expert Opinion."
Memo to
Oaktree Clients
From
Howard Marks
Re
Expert Opinion
(Excerpted with links below)
My Opinion of Opinions
Since I’ve discussed these things at great length over the years, I‘ll try here to sum up succinctly:
There are no facts about the future, just opinions. Anyone who asserts with conviction what he thinks will happen in the macro future is overstating his foresight, whether out of ignorance, hubris or dishonesty.
Developments in economies, interest rates, currencies and markets aren’t the result of scientific processes. The involvement in them of people – with their emotions, foibles and biases – renders them highly unpredictable.As physicist Richard Feynman put it, “Imagine how much harder physics would be if electrons had feelings!”
It’s one thing to have opinions on these subjects, but something very different to be confident they’re right (and act on them).
Taking bold action based on forecasts of things that are uncertain isn’t just misguided; it’s dangerous. As Mark Twain said, “It ain’t what you don’t know that gets you into trouble.It’s what you know for certain that just ain’t true.”
Everyone at Oaktree has opinions on the macro. And when we see extremes in markets and, especially, capital market behavior, we’re apt to take strong action. But we’re highly aware of what we don’t know, and when conditions are moderate or indistinct, we don’t bet heavily.
Bonus section: I’ve been collecting (and recycling) quotations for almost forty years, more of them concerning forecasts than anything else. Here are five of the very best. Together they say virtually everything that has to be said on the subject:
We have two classes of forecasters: Those who don’t know – and those who don’t know they don’t know.
– John Kenneth Galbraith
No amount of sophistication is going to allay the fact that all of your knowledge is about the past and all your decisions are about the future.
– Ian Wilson (former GE executive)
Forecasts create the mirage that the future is knowable.
– Peter Bernstein
Forecasts usually tell us more of the forecaster than of the future.
– Warren Buffett
I never think of the future – it comes soon enough.
– Albert Einstein
In his memo, Howard Marks examines the precision of so-called "Expert Opinion."https://www.oaktreecapital.com/insights/howard-marks-memos
Video Link
https://www.oaktreecapital.com/insights/videos/howard-marks-recent-memo
Client call summary:
Why Stay Invested in Equities at High Valuations for Modest Returns?
- The historical probability of positive returns is very high outside of recessions, even when valuations are elevated.
- Valuations are a poor tactical timing tool and must be taken in context.
- Risks are not onesided, as there are several sources of potential upside surprise.
- Longer-term momentum signals are consistent with further upside.
- We see little evidence of equity market euphoria, a typical condition at market peaks.
https://www.worldbank.org/en/publication/global-economic-prospects
I too am addicted to pithy quotations and market maxims. That's obvious from my postings. I frequently incorporate these sayings in my submittals to increase readership enjoyment. Every little bit helps.
Sometimes my quotation goals are frustrated. Every once in a while, I recall conflicting words of wisdom on the same topic. For instance, Miguel Cervantes is often credited with " Don't put all your eggs in one basket". Contrary-wise, Mark Twain advised "Put all your eggs in one basket, and watch that basket".
Too concentrate or diversify a portfolio, that is a frequent portfolio construction puzzle. Like most market puzzles, no one answer satisfies all circumstances. It depends. It depends on many factors including technical, fundamental, economic, and emotional circumstances for each individual investor.
That observation likely doesn't surprise any experienced investor. We all have different investment targets, portfolio strategies, ages, wealth, and needs. That's what makes both selling and buying simultaneously a good decision for each investor. Both parties can prosper from a trade. Once again, it all depends.
Thank you for your contribution to this discussion.
Best Wishes.