Posts filed under “Investing”

Despite Abysmal Track Records, Forecasters Keep Forecasting

On this day in 1993, the Wall Street Journal published a survey of 10 market pundits. They had been asked when the bull market that started in 1982 would end. Most of the forecasters predicted a 10 percent market decline — hardly a bold position because 10 percent declines occur fairly often, about once a year on average. However, Joe Granville, among the most heralded market forecaster of his generation, declared that the bull run was over, and he foresaw the Dow Jones Industrial Average, then approaching 3,700, declining to 2,900 by the spring of 1994. Instead, the Dow went the opposite way, rising to almost 3,800 by year-end.

I was reminded of this yesterday, courtesy of this article by Bloomberg News: “Predictors of ’29 Crash See 65% Chance of 2015 Recession.” Regular readers might recall that I have some issues with both forecasts and forecasters.

Let’s get some obvious stuff out of the way first: No, the guy who made the 1929 crash prediction isn’t making a forecast. That was Jerome Levy, who no longer makes predictions (he died many years ago). Rather, this is a different firm run by his grandson. The methodology may no longer be the same, nor is the forecaster. This is the third generation of Levys making economic predictions.

Who knew there was a gene for prognostication?

Based upon some of the other forecasts of Levy the Younger, I can safely declare: No, there is not a gene for forecasting.

Let’s start with the actual prediction: The Levy analysts envision a “65 percent probability of a worldwide recession forcing a contraction in the U.S. by the end of next year.”

Kudos for using a percentage, rather than a definitive statement, something we have discussed before (here and here). However, this is a repeat of a 2010 forecast for a 60 percent chance of a U.S. recession. At least Levy & Co. had the courtesy to wait four years before doubling down on roughly the same prediction.

Continues here





Category: Apprenticed Investor, Investing, Really, really bad calls

Investors Always Seem to Miss Stock Market Rallies

Source: Business Insider     UPDATE: We’ve shown the opposite over the years as well — here is what happens if you manage to miss the worst days. • Missing Best & Worst Days in Markets – April 28th, 2011 • Missing Best & Worst Days of S&P500 – September 14th, 2010 The fascinating wrinkle about…Read More

Category: Cycles, Investing, Markets

Shareholder Value Maximization: The World’s Dumbest Idea?

Source: CFA Institute

Category: Corporate Management, Investing, Video

Two Election Winners

Two Election Winners David R. Kotok, November 5, 2014       Two winners emerge after the election. One is the Gini coefficient. It measures the income divide of the population. It has been widening. Those at the top income level have improved their wealth. The middle income level has been eroding and is experiencing…Read More

Category: Investing, Politics, Think Tank

Disbelief in Equities is What is Driving Them Higher

As a fan of investor psychology, I find sentiment intriguing. Measuring it is a challenge. We can’t trust what people say because they become bullish after they buy and bearish after they sell, convincing themselves that past trades were the correct way to go. Humans are notorious liars — especially to themselves. When they are…Read More

Category: Investing, Psychology, Sentiment

Find a financial adviser who will put your interests first

Find a financial adviser who will put your interests first Barry Ritholtz Washington Post, October 26 2014       Today’s column is going to be on the wonky side, but stay with me — it is very important stuff. For investors seeking some help, it can be crucial. If you want financial advice, there…Read More

Category: Apprenticed Investor, Investing, Legal

Misunderstanding the Magazine Cover Indicator

One of the more infamous and misunderstood market signals is the magazine-cover indicator. Created by Paul Macrae Montgomery, this contrary indicator essentially tells us when some investment theme or fad has reached a crescendo. The thinking goes that by the time the editors of Time find out about some hot investing trend, it is all…Read More

Category: Contrary Indicators, Investing

Why There Are Two Standards for Financial Advice

> My Sunday Washington Post Business Section column is out. This morning, we look at the various legal standards of care financial advisors must adhere to. The print version had the full headline Why Two Standards for Financial Advice? while the online version was Find a financial adviser who will put your interests first. As I…Read More

Category: Finance, Investing, Legal

Asset Classes: Real 10-Year Expected Return

Source: Research Affiliates   Rob Arnott of Research Affiliates writes: In a world of low bond yields and slow economic growth, historically realized 5-6% real (7-8% nominal) asset class returns may be unrealistic expectations for the future. In other words, assets with above-average valuations may not deliver the sort of returns people came to expect…Read More

Category: Asset Allocation, Investing, Markets

You Are Worrying About the Wrong Things

No, you are not going to die from Ebola. To quote a wag on Twitter, “More Americans have been married to Kim Kardashian than have died from Ebola.” But the latest scare does have a small positive: It provides me with yet another opportunity to lecture you about how incredibly dumb your lizard brain is….Read More

Category: Investing, Politics, Psychology, Really, really bad calls