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 2017 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.
Comments
Thanks for posting as I found the linked article indeed good reading.
As a successful small retail investor I fall for it every year and make a forecast much like many others as to where the S&P will close at year end. This year is no different. My SWAG (Scientific Wild Ass Guess) for 2017 is 2475. It is computed by using a projected TTM Earnings for the S&P500 Index of $112.50 times the anticipated Ratio of 22. Do the math, that is about a 10.5% increase form 2016 year ending close of 2239.
Do I feel the market is currently overbought? Indeed, I do based upon my market valuation matrix. Can it stay this way? Indeed, it can for a good period of time as long as investors and market traders (Big Money) keep bidding up prices!
According to the article ... It is as good as any ... and, might be better than most.
Take care and have a Blessed New Year.
Skeet
Note: I reserve the right to change my forecast, at any time, like most analyst do as we move through the year.
Thank you for your contribution and your 2017 forecast. According to the article, the odds of your projection being correct slightly exceeds the likelihood that the experts have it right.
I hope you are nearly on-target. I am not substantially changing my portfolio asset allocation. Admitting it or not, that decision is a forecast by itself. We all do that when we make that asset allocation decision.
I certainly endorse a flexible strategy that permits adjustments as information is updated. As John Maynard Keynes famously said: "When the facts change, I change my mind. What do you do,sir?" In predicting the future, he also said: "it is better to be approximately right than precisely wrong". Precision is an impossible standard when investing.
I wish you good luck, good health, and good forecasting success. We all need a little of that.