The Wall Street Journal had an article on forecasting a while back, partly highlighting how bad forecasts typically were. When I re-read it, one of the things that struck me was the following quote:
Sometimes forecasting isn’t even about the future, some researchers say. The true goals of some predictions, says Kesten Green, a forecasting researcher at Monash University in Melbourne, Australia, include lighting a fire under the sales force or alarming the public into some sort of action.
That’s very true in the public policy arena when someone has an axe to grind. In the financial markets, it seems like the forecasts are often designed just to get attention. If your goal is “hey, look at me,” it’s understandable why some of the forecasts are so extreme. The more in tune with public sentiment and the crazier the forecast is, the more attention it gets.
With public confidence in the financial market very low right now, no one wants to hear about a Dow 36,000 forecast—but a Dow 6,000 forecast will have lots of eager listeners. Is that really forecasting or is it just pandering?
You can always make an articulate case for whatever you want, if you selectively choose data and interpret it liberally. That doesn’t make it correct. While it is sometimes interesting to contemplate what might happen, no one really knows. And often, worrying about what might happen keeps investors from acting in the here and now.
We think the market is so incredibly complex that it is not possible to make consistently accurate forecasts. As a result, we rely on an adaptive process that modifies portfolio holdings as conditions evolve. That way the portfolio is based on what is actually happening, as opposed to what may or may not happen in the future.
how much bigger do you think you losses will get?
[…] The real goal of forecasting. (Systematic Relative Strength) […]
Very much agree with your opinion on this article. I’ve been saying for years that these news reports and forecasts are more about getting people to read them than reality. The idea of why something happens is the easiest way to get someone to read because we all want to know why. It’s human nature! Truth is that nobody ever really knows “why” when it comes to the stock market which is why I like PF charting, RS, and Trend following so much.