In this article, British economist Samuel Brittan steps out of line to tell the truth about economic forecasting. He says, “The popular view of economists is that they exist to make forecasts and do so badly. One of the more basic rules of the subject is that where a demand exists some people will come forward to supply it. The economists who have done so for forecasts have accordingly fallen flat on their faces. Their usual response is that most of the time they get it reasonably right. But what matters is whether they can identify significant turning points and systemic failures in good time. They cannot.” (my emphasis)
Forecasters in financial markets all face the same problem. No one can identify significant turning points in advance, yet plenty of people still seeming willing to fall flat on their faces trying. Financial media is populated with gurus with answers, although it takes only about 20 minutes of watching CNBC to find commentators on opposite sides of the same issue.
Instead of making a forecast and then feeling beholden to it, we think it is more sensible to keep a flexible, trend-following perspective. As trends change, move along with them rather than trying to guess when the turns will occur.
