I came across the following study which evaluates and ranks 68 market forecasters.
Although the study is from 2017, I believe overall results are still pertinent today.
Major finding: the majority of forecasters perform at levels not significantly different than chance,
which makes it very difficult to tell if there is any skill present.
• Across all forecasts, the accuracy is around 48%.
• Two-thirds of forecasts predict as far as only a month.
• Only one-third of forecasts predict periods over one month.
• Two-thirds of forecasters have an accuracy level below 50%.
• Only about 6% of forecasters have their accuracy values between 70% and 79%.
• The highest accuracy value is still below 80%.
https://pdfs.semanticscholar.org/afca/37db6aa17f5be8e5d1ebb93c40cf52413123.pdfSSRN paper
Comments
https://www.morningstar.ca/ca/news/260559/do-market-forecasts-really-matter.aspx
Well on the glass half full side, it kinda disproves one poster's incessant claims that ALL forecasts (except his) are ALWAYS wrong, ALL the time!
FWIW, we use forecasts in a manner similar to what CB suggests, to help shape LT planning assumptions. We annually look briefly at a different forecasts but look daily/weekly at a lot of different T/A's work.
We take deep dives into WHY they are making their respective T/A conclusions. (We spend far more time on T/A than forecasts.) Then like our process of selecting PMs for active funds, we look at who has worthy LT performance records and who are making similar, strong cases for their conclusions. (Note the PM hurdle is consistent S&P outperformance.)
Forecasts are more like guardrails for LT planning, while the aggregate work of T/A's we follow and trust play a large part in our investment strategy, mostly ST, but at times relatively LT as well.
This helps me set reasonable expectations for future returns.
I don't use this information for making trading decisions or to upend my portfolio.
I'm reminded of the dot-com boom in the late 90s.
Some of my IT coworkers (mid 20s to early 30s in age) were extremely exuberant
and expected 20%+ long-term U.S. stock returns far into the foreseeable future.
No matter how good they are I don't see how any of them can handle todays 3-min tweets of change.
the track record of forecasters have pushed many into the dismal astrology of technical analysis.
As we all know. there are two primary evaluation methods, fundamental and technical analysis. They are BOTH widely used by virtually EVERY PM on the planet. Some market participants are also capable of both, most are not.
At this particular(ly strange) juncture of market activity, TOT has rendered fundamental analysis largely useless (for the time being - pulled guidance based largely on inability to accurately project future cost of goods sold) and the more reliable analysis method currently is clearly, IMO at least, T/A.
FWIW, I'm using T/A to guide our ST and to some degree, LT investment decisions at this point. And in case you don't follow my posts, it's um, how shall I say, working pretty far above a "dismal astrology" (sic) level.
As one famed investment poster and respected T/A likes often posts, "When you get enough dots on the chart, you can reasonably accurately predict where the next dots will be."
What investment analysis method(s) do you use and how's that all working out for you?
T/A to me is a different bird than simply forecasting. Won’t dispute that it works for some practitioners. I personally do a lot of chart-gazing when considering an investment. Being afraid of heights, I usually buy things that have underperformed in recent years - but have a solid longer term record. Guess that’s a crude sort of T/A.
Some will recall a member @Flack who lived and died by T/A. Was an expert follower. And often went head-to-head with another valued regular @MJG.
I don't know of a PM worth considering as my PM that doesn't use both. Do you?
T/A is art and science. The science part is relatively uniform and consistent. The artist part varies wildly at times and is critical to success.
Even more critical is individual investors determining who the good artists are. It took us years to develop an inventory of names and sites of who we believe are good ones. I routinely name a few when quoting them. I'm pretty sure based on the level of T/A knowledge and skepticism on this board I'll be limiting those direct references in the future.
T/A is highly fallible on an individual and case-by-case basis. So...we review several T/A's work, look for common projections/conclusions, and try to determine the validity of WHY they came to that. We have found it VERY useful (read, "necessary") during highly volatile times including Corrections and Bears, to project trading ranges and min/max pain levels, and to refine our strategy.
Popular investment boards were fortunate for years to have a great resident T/A posting regularly. In 2022, I think he had a TR north of 20% using T/A and trading 3x ETFs. I would wager that TR FAR exceeds the (likely negative) TR of ANY other participant on this board. I know it works for him.
And on a far lesser accomplishment, T/A has sleeping us well and net positive YTD.
I use big picture analysis with only 2 possible outcomes. I get a signal to stay in/out at 99+%.
Then, the charts(simple T/A) + other indicators must verify it, and then I trade.
The main idea is not to lose more than 3% from any last top because I have plenty. I own mostly bond OEFs. The performance must be better than 50/50. Since retirement in 2018, I easily beat it.
I don't care to beat any index or anyone. I only care about my goals.
I always sell too early; when I'm wrong, if my indicators improve, I'm back within days.
When I'm right, I hardly lose and can be out from weeks to months (in 2022, I was out 9-10 months).
My conclusions
* T/A is an art, and you must practice it and create your own system.
* I only use it on the extreme, to verify going from buy to sell. That mechanic helps me a lot.
* Over many years, my T/A works pretty well with slow bond funds, not so much with stock funds because volatility creates uncertainty.
we are probably in different galaxies, so will keep it 'what works' short.
am in yr 6 of FIRE (financially independent, retire early) and well past wealth accumulation mode.
my target was avg -3%/yr net worth drawdown, and have beat that by +5%.
my priority is risk , my tool is asset allocation, and my radar is on taxes.
i shifted from ~75% equity pre-retirement to ~25%, with the largest shift away from equity (40%->25%) after the 2024 election. this also included a internal shift to more intnl.
have never held a mkt-cap index fund, and for the majority of my equity :
growth : i have long allocated to GARP managers, mostly giroux and primecap.
value : i mix active mostly via wellington, and systematic via avantis\dimensional.
i have aside ~10% discretionary where i experiment with niche funds and individual stocks.
it is primarily fundamental, but sometimes i have set order limits at yearly lows.
this bucket has huge dispersion but net has been a wash.
i would never buy stocks such as tesla nor djt (nor hundreds of others) no matter what technicals spout.
finally, i have a math minor and graduate-level STEM degree , read mandelbrot's view during the GFC, keep track of academic trend-following, and have passed on technical trading since then. condescension unnecessary.
Yeah, well, you did call T/A "the dismal astrology of technical analysis." I routinely support T/A so I take your comment as condescending. Perception is reality as they say.
I'm not sure what most of the rest of your post has to do with the discussion, but here's my FWIW story that may show we ain't in galaxies very far away from each other.
I hail from near dirt poor, that is, we did have real floors.
I was a bean counter for 35+ years doing major audit work in federal programs.
Been investing since 1980.Early on, our strategy was paint-by-numbers, driven by my investing mentor's guidance; investing exclusively in Magellan and then Low-Priced Stock when it was born, set the stage for a likely early retirement.
We retired financially independent at age 56.
In recent years our investment strategy has been driven by T/A.
Our market exposure is ~40% Passive/~60% Active, and primarily OEFs.
Our radar has been squarely on taxes since starting employment. We have not paid a dime in FIT/SIT since retiring in 2012 and plan to not pay a dime until RMDs in 2029.
There are three stages to investing: Accumulation, Maintenance and Disbursement. We are still in the Accumulation phase at age 69 and don't project to to even sniff the Maintenance phase until age 90. Our liquid net worth is expected to increase through the end of our projections at age 100. So drawdowns are nothing we concern ourselves with.
I have a coupla advanced, graduate level certifications in accounting and auditing.
Also...
We've been to a Super Bowl that our team came back to win in the last minute and a World Series that our team won in the bottom of the ninth of Game 7 against arguably the greatest reliever of all-time.
Unfortunately, we've never stayed at a Holiday Inn Express but hope to one day.
Do you NOT think that T/A is both an essential and integral part of virtually ALL actively managed OEFs/ETFs, whether the PM is/is not a T/A themselves?
If PMs do NOT use T/A as their primary/secondary drivers of strategy and trades, what do you think are the primary/secondary drivers of their strategies and trades other than fundamental analysis?
Algorithmic trading reportedly accounts for ~60-70% of all market trades. What do you think is the primary driver of algorithmic trading?
i guess no one else had the, uh, capex nor intellectual capacity.
https://www.investopedia.com/articles/active-trading/062215/debunking-8-myths-about-technical-analysis.asp
Excerpt:
Ultimately, it is up to each trader to explore technical analysis and determine if it is right for them. It doesn't guarantee instant profits or 100% accuracy, but for those who diligently practice the concepts, it does provide a realistic possibility of trading success.
Stillers,
u just said 'What investment analysis method(s) do you use and how's that all working out for you?"!!
before "I'm not sure what most of the rest of your post has to do with the discussion"!!
nevermind, we are in some ways, in closer galaxies.
where can i get some of that technical analysis ensuring that 100-150 age for my drawdown?
enquiring actuarials await.
I guess I follow the rule that if I'm gonna try to poke fun at somebody, I ensure that I at least use, you know, proper English. (Last time I checked actuarial was still an adjective.) Otherwise I kind of look a little silly.
So I'm gonna go ahead and pass on a response here.
Does Buffett or Bogle use T/A or recommend it?
On this site, Charles Lynn Bolin has posted excellent analysis of what funds to own; does he use T/A?
I won’t link any Buffet videos because all of the shorter, more succinct ones I looked at are of poor quality plus an aging Buffett (even a decade ago) tends to wander aimlessly reflecting on his coming of age as an investor at 19. Not really very good viewing. The Rose interview is good - but at an hour’s duration I’ll pass.
I also Googled whether or not David Giroux’s uses T/A and drew a lot of “blanks” on that subject. Apparently Giroux is too smart to get drawn into a debate (raging on the internet) as to whether T/A or fundamental analysis is better.
I think both sides here have made good points and hope a truce can be arrived at because I’d hate to see any of the participants leave the board.
It doesn't matter if they manage a fund. They manage their own money.
If T/A was the best method in the world, you would find thousands of funds using it and rave about how great they have done.
Similar to high-dist funds. If this has been the best way to make money, you would find thousands of funds.....
I'd suggest that those who wish to discuss/debate T/A use the following thread.
https://www.mutualfundobserver.com/discuss/discussion/63742/timely-t-a-for-stock-investors#latest