The title is from an excellent article from the underrated business section of the NY Times:
“The Bespoke report reviewed the recent history of Wall Street predictions and found them wanting. Since 2000, it found, the consensus has called for an average yearly increase in the S.&P. 500 of about 9.5 percent. The actual average annual change was less than 4 percent, however, and consensus predictions were inaccurate in every single year, sometimes by preposterous margins. In 2001, for example, the consensus called for a gain of 20.7 percent. But the index fell by 13 percent. In the horrible year of 2008, the consensus was that the market would rise 11.1 percent. As many investors may recall, it fell by 38.5 percent. Not once since 2000 has Wall Street predicted that the market would decline in a calendar year. Yet the market actually fell in five of those years.”
And this:
“The start of a new year is the season for prognostication, and many analysts have issued very specific predictions. The consensus on Wall Street is that the S.&P. 500 will rise 7 percent for all of 2016.”
It must be the week for skepticism as the print edition of the Economist had this:
“Despite forecasters’ best efforts, growth is devilishly hard to predict”
http://www.economist.com/node/21685480
“An important caveat is in order. Forecasts of all sorts are especially bad at predicting downturns. Over the period, there were 220 instances in which an economy grew in one year before shrinking in the next. In its April forecasts the IMF never once foresaw the contraction looming in the next year. Even in October of the year in question, the IMF predicted that a recession had begun only half the time. To be fair, an average-growth prediction also misses 100% of recessions. One model does better, though. Our random-number generator correctly forecast the start of a recession 18% of the time.”
As long as we are on the subject, Campbell Harvey (Duke) has some excellent comments on evaluating investment and trading strategies, luck vs. skill, etc. Here is an interview, a pod cast and a paper by him:
Interview with Campbell Harvey:
https://www.richmondfed.org/publications/research/econ_focus/2015/q1/interview
Pod cast from Econ Talk with Campbell Harvey:
http://www.econtalk.org/archives/2015/03/campbell_harvey.html
A co-authored paper, Evaluating Trading Strategies”, with Yan Liu is here:
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