Hi Guys,
I am an engineer by temperament, training, and experience. I like smart folks, especially those that develop sophisticated investment prediction models. In his "The Money Game" book, Adam Smith concurs that an investor should seek advice from smart people. Of course, one issue is how to identify smart market participants.
One might suspect that carefully trained economists, who are hired by financial organizations, would nicely fit that framework. Maybe, but it's not that easy.
In the early
1990s I counted Elaine Garzarelli as one such market-wise forecasting hero. She had an elaborate macroeconomic computer model that accurately forecasted the
1987 equity meltdown. Since that famous forecast, her record has suffered somewhat. According to one scorecard, she is correct about one-third of the time. Anyone for a fair coin toss projection?
Equity returns forecasts for 20
17 are presently dominating the media and investor exchanges. It's great sport, but it is highly likely that the projections are in serious error. The record, even for the most well informed cohort of professionals, is dismal. How dismal? Here is a Link to some research that was completed a year ago:
http://www.fool.com/investing/general/2015/02/25/the-blind-forecaster.aspxThe findings are consistent with similar studies. Predicting returns is a challenging assignment, and most fail the task. A blind forecaster just might equal the accuracy of these highly paid experts. The author claims that emotional factors control the outcome, and these are impossible to forecast. I guess that means we should all keep a heavy reserve to protect against the uncertainty of the markets, regardless of professional opinion.
Best Regards.
