Forecasting

By Eric Burkholder, Portfolio Manager

A 2012 review of market outcomes and the “experts” who failed to predict them.

“Prediction is very difficult, especially if it's about the future.” - Niels Bohr, Danish physicist

The world of investment advice and market forecasting is very profitable.  Let me rephrase that.  The world of investment advice and market forecasting is very profitable for those selling the advice.  The outcome for those who invest on said advice is not quite as rosy.  So each year I make a point to track all the “expert” predictions and highlight some of the more pronounced failures.  2012, as expected, did not disappoint.

With only a short time left until we select the 45th President of the United States of America many investors are in a state of panic. Many believe the market is waiting for the outcome and if the "correct" candidate is selected the stock market will immediately surge on the news. Or, if the "wrong" candidate is selected the market will tank the next day. Fortunately, history provides a guide on this matter and it suggests that, when it comes to U.S. Presidents, the market is a true Independent.

By Eric Burkholder

There is a very good article out today on MarketWatch.com.  "You are the best predictor of next bull or bear" The title is misleading but the theme of the article is this:  There is no evidence that any person or any expert has any ability to predict mutual fund returns or forecast the economy.  Actually, an even better summary of the article is in the affirmative: There IS significant evidence that traditional performance metrics cannot reliably predict mutual fund performance and there IS significant evidence that experts do a very poor job of predicting turning points in the economy.