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Market Predictions - What Are They Worth?

Some Market Predictions Turn Out To Be Uncannily Accurate... Why?


Some market predictions turn out to be right... don't they?

Remember, even a broken clock is right twice a day. Make enough predictions and eventually one will turn out to be right. The best thing to do is follow thoughtful research and ignore market predictions. The trick is knowing which is which. The articles and commentary below should help.

1. No More Stupid Forecasts!

Think someone can predict the next stock market move? This article titled No More Stupid Forecasts might open your eyes to the way it really works. As Michael Edesess, author of The Big Investment Lie states in the opening paragraph "Watching experts predict the future is like watching professional wrestling. You assume everybody knows it’s a put-up job but can’t resist it anyway. Then you discover that most people don’t even know it’s a put-up job in the first place."

2. Market Predictions: Follow Your Gut?

In this article I wrote for MarketWatch I tell the story of a client of mine who asked me for my market predictions. He wanted to know what my "gut" said. The question is, should you follow your gut, or mine? And is my gut feeling on the markets any better than yours? This is what I discuss in this article.

3. Jeremy Grantham, Co-founder of GMO, A Privately Held Investment Management Firm

With an unprecedented degree of accuracy Jeremy Grantham predicted a decade of equity and bond returns in exact rank order. In August, 2008, in an article in The Economist, titled The Long And Short Of It, you can find this market prediction:

“More generally, Jeremy Grantham, GMO’s chairman, thinks that the equity bear market will continue for another couple of years, with the S&P 500 dropping by around 10-15% from here. But he warns that the chance of a meltdown—a drop well below fair value—has increased.”

The market did in fact go down as the quote above suggested. Then in March of 2009, Jeremy began recommending cautiously adding money back into equities. Does his past track record make his market predictions worth trading on? Not so fast. The truth is Jeremy Grantham studies data, thinks logically, has spent a lifetime working with financial markets, and I think he would be one of the first to tell you that no one can make consistently accurate stock market predictions. They may have all the data and trends right - and often they do - but that doesn't mean you can get the timing right and make profit-generating trades on that data.

4. 8 Who Saw The Crisis Coming... And 8 Who Didn't

In this August 2008 Fortune article titled 8 Who Saw The Crisis Coming And 8 Who Didn't, authors Katie Benner and Christopher Tkaczyk profile eight people, from bankers to traders to economists, who saw the crisis coming, and eight more, including Alan Greenspan, who didn't. They are all smart people. If you make enough predictions, over time you'll end up on the "got it right" list too, and then make some more market predictions and you'll end up on the "got it wrong" list. It is easy in hindsight to see who "got it right". It's not so easy to identify those same people in advance.

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