PREDICTIONS ARE HARD. ESPECIALLY ABOUT THE FUTURE.
So said the famous Yogi Berra….From this morning’s Barrons:
“The mean prediction of the 10 stock-market strategists and investment managers surveyed by Barron’s is that the Standard & Poor’s 500 Index will end 2012 at about 1360, some 11.5% higher than Friday’s close of 1220. That sounds like a big gain, but a lot of things have to go right for the market to make such impressive headway. Even the most bullish of these Street seers fears stocks could be more wobbly in the next six months than in the six months past.
Ironically, 1360 is very nearly the same S&P 500 target offered up a year ago in these pages — for 2011. But what a difference a year makes. Last December, the strategists and investors we rounded up were looking ahead with modest but sturdy optimism. Investors can only look back with envy now to what seems a more hopeful, less dangerous time, when the main topic of debate was the sustainability of the U.S. economic recovery. By May the market had risen 8%, and seemed poised to motor to 1370 with ease.”
Value add, right? Right???
Source: Barrons
I am thinking that I will stick w/ Mercator’s comment over here:
http://pragcap.com/this-little-followed-index-points-to-recession
It is what I am seeing in my company too. And oh wait! We have a ~10% lay-off happening in mid-January.
Merry Xmas.
The average nominal return on stocks since 1929 according to Moneychimp.com is 11.21%.
http://moneychimp.com/features/market_cagr.htm
Seems to me that these “experts” are really just engaging in a simple arithmetic calculation to arrive at their “forecasts”.
For this they get paid the big bucks
CXO Advisory tracks the accuracy of the market calls of 60 market gurus. They have data for the last two years. Out of 60 gurus there are 8 that have market timing accuracy more than 60%. The highest is 68%. The majority have between 40% and 50% accuracy. Yes, Yogi Berra is right. It is difficult to make forecasts and especially about the future. Actually I think that originally this thought belongs to the Danish physicist Niels Bohr.
http://www.capatcolumbia.com/reading%20packet/On%20thinking.pdf
For those who have never read Arthur Zeikel’s “On Thinking” it is well worth the read.
Coolidge,
That was really interesting. Written 6 mths after the crash of 1987 it has a very resonant feeling to it.
My favorite quote was:
“Vanity, one’s own personal vanity, is probably the greatest single enemy to stock market success. It is vanity that leads us to take small profits but large losses.”
From Why You Win or Lose, by Fred C. Kelly, 1930
They were definitely anticipating the Behavioral Economics ideas which were well formalized by Kahneman.
You might like this essay:
http://www.behaviouralfinance.net/behavioural-finance.pdf
“When two people agree on everything, one of them is not necessary.”
John Savage
One of my favorite quotes is from General Patton – “If we’re all thinking alike then someone isn’t thinking.”
Thanks for the links by the way. Good reading.
DOW 1 by 2013. Mark my words.
See another article from the current Barron’s: http://online.barrons.com/article/SB50001424052748704746704577094501097288154.html?mod=BOL_twm_fs#articleTabs_article%3D1
Van Hoisington is the Rodney Dangerfield of money managers. He gets no respect. There is “only” $200 million in his flagship fund WHOSX, which “only” had a total return of 30% in the past 12 months, and a 5 YR annualized return of 12.3%.
His favorite economist is Irving Fisher, who wrote his Theory of Interest in 1930. Hoisington argues for low inflation approaching zero, and a recession sometime in 2012. Like all the other experts, he could be wrong, but worth reading the interview. He is a treasury bond bull.
His 3 yr return is 52nd percentile among peers – i.e. a coin flip. No big deal.
Hoisington’s 5 year annualized total return on his fund WHOSX puts him in the top 15% of all US mutual funds for the 5 year period, more significant than the 3 year, especially because the 5-yr period includes 2007 and 2008, the time when the last big financial crisis hit us.
Sorry, the anonymous comment above about Barron’s was from me.
All traders and investors are making an implicit prediction about the future at the time they commit their money to a trade or to a longer-term investment. If not a specific prediction, then at least a judgment on the relative probability of different outcomes. Hence we all greatly need better models, or better algorithms (like the one Cullen uses to trade). Just because CXO Advisory says the majority of “gurus” don’t have a good track record, it does not mean we should not stop trying to find persons and/or organizations that add value to our investment judgements of probable outcomes.
I want to thank Cullen and the community of folks who post on pragcap.com for helping me to become a better investor/trader in 2011 than I was a few years ago (most notably having had a tough year in 2008).
I predict I will stare at the jar of peanut butter Christmas M&Ms all day.
And I predict when my wife goes up stairs to put our son to sleep and asks what I’m doing I will be down stairs like a bear in a Yosemite trash can devouring M&Ms. I might put some in my pockets like a squirrel so I don’t have to make the long journey between bites.
I would not short VIIs M&MS weight loss…. The losses are unlimited.
Every December, the forecast is roughly for a 5%-10% gain simply because that’s what stocks historically gained on average. Then markets tank, they are expected to rebound 10%. When markets are on a bull run, the bull run is expected to continue at least by another 10%. Consensus forecasts are pretty much worthless.
Nobody remembers forecasts and predictions, and in the end what does it really matter. Investors have five options: cash, bonds, equities, commodities or real estate. Eventually, money moves liike water, it will find the path of least resistance. Right now that is equities. Every other asset class has a negative real return, so unless you think massive deflation is right around the corner, your options to protect your money are fairly limited. This Fed will not allow deflation, and America is not Japan. Equities may not go up much, but those with a decent dividend yield will probably not crash.