Jeff Sommer, NY Times, discusses how bad stock market forecasts are, here… He relies on research by Bespoke’s, Paul Hickey:
“Paul Hickey, a co-founder of Bespoke Investment Group, crunched the numbers for me, updating calculations that I cited four years ago. Sadly, the forecasters are no more impressive now than they were then.
For every calendar year since 2000, Mr. Hickey compared the annual Wall Street consensus forecast in late December with the actual level of the S&P 500 one year later. He found that, on average:
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The median forecast was that the stock index would rise 9.8 percent in the next calendar year. The S&P 500 actually rose 5.5 percent.
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The gap between the median forecast and the market return was 4.31 percentage points, an error of almost 45 percent.
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The median forecast was that stocks would rise every year for the last 20 years, but they fell in six years. The consensus was wrong about the basic direction of the market 30 percent of the time.
Mr. Hickey found that the forecasts were often off by staggering amounts, especially when an accurate forecast would have mattered most. In 2008, for example, when stocks fell 38.5 percent, the median forecast was typically cheery, calling for an 11.1 percent stock market rise. That Wall Street consensus forecast was wrong by 49.6 percentage points, and it had disastrous consequences for anyone who relied on it.”
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