Market-Predicting Gurus Worse Than Flipping A Coin

Yet another study showing how poorly prognosticators do. There's too much noise in the markets in the short run to have any forecasting methodology with reliable predictive ability. And if there were such a methodology, why would anyone share it rather than make huge profits for themselves?

- Kevin Kroskey, CFP, MBA

Gurus Achieve An Astounding 47.4% Accuracy (From Forbes.com)

"After tracking 68 experts and 6,582 market forecasts, CXO Advisory Group has concluded that the average market prediction offered by experts has been below 50% accuracy.

The results are in and they are bad. After tracking 68 experts and 6,582 market forecasts, CXO Advisory Group has concluded that the average market prediction offered by experts has been below 50% accuracy. Flip a coin and your odds for predicting the market are better.

It’s hard to imagine that the average market expert isn’t able to at least match the track record of a coin flip, but it’s true. Figure 1 has, by name, the relative performance accuracy of every guru that CXO Guru Grades has tracked.

From 2005 through 2012, CXO collected 6,582 forecasts for the U.S. stock market offered publicly by 68 experts, bulls and bears employing technical, fundamental and sentiment indicators. Collected forecasts also included those in CXO’s archives. The oldest forecast in the sample is from the end of 1998.

The selected public records are sometimes found on the web sites of the gurus themselves and sometimes on web sites of other parties (for example, the business media). Especially for the former, CXO looked for archives that are clearly dated and not retrospectively filtered to avoid cherry-picking.

Some of the Gurus dropped out of the race along the way and their records stopped at their last prediction. Other Gurus sited reasons for their lackluster performances. For a compilation of general objections and defenses made by the Guru’s under scrutiny, see The Demon’s Defense.

This marks the final tally of CXO Guru Grade project. Proprietor Steve LeCompte doesn’t see a practical reason for continuing the study. The point about inaccurate market forecasts as shown again, and again, and again."

This article prepared by Forbes.

Diversification: Disciplinarian of Disciplinarians

Disciplined diversification works when you do and even when you don't want it to. Diversification in effect forces you to sell the thing that has been doing so well in your portfolio and to buy the thing that hasn't. While this makes rational sense, it is emotionally difficult to execute. Think back to the tail end of 2008--were you selling bonds and cash to buy stocks? Most likely you weren't unless your advisor or some sort of automatic trigger did it for you. Carl Richards of www.behaviorgap.com provided a good reminder of how diversification works in a recent NY Times blog post. The diversification he discusses here is more so related to equity asset-class diversification but also touches on the three basic building blocks--equities, bonds, and cash. He doesn't discuss alternative asset classes -- an asset class that doesn't fit neatly into the three basic categories -- being used to further diversification, but that's a detailed topic for another day. ...

What Does $100 Buy You in Your Home State?

A new map released by the Tax Foundation shows exactly how far $100 would go in all 50 states. Using recently released data from the Bureau of Economic Analysis, the Tax Foundation was able to show how the varying prices of goods, housing and income taxes in each state can impact consumers’ purchasing power. Southerners and Midwesterners have a serious edge over those along the East and West Coasts. A hundred bucks goes the furthest in Mississippi, where $100 will buy you what would cost $115.74 in another state that's closer to the national average. The next low-price states are Arkansas, Missouri, and Alabama. Ohio comes in at an encouraging $112.11 Meanwhile, $100 would only be worth $84.60 in the District of Columbia, the priciest state, $85.32 in Hawaii and $86.66 in New York. http://finance.yahoo.com/news/how-much--100-is-worth-in-your-state-152310027.html Click the Map Read More

Medals Per Million

By now, you've seen the final medal count at the London Olympics, and no doubt felt a stirring of national pride. American athletes took home 104 total gold, silver and bronze medals, comfortably ahead of China (87), Russia (82), Great Britain (65), Germany (44), Japan (38), Australia (35), France (34), South Korea (28) and Italy (28). Does that mean that we Americans--so often accused of being a nation of couch potatoes--are the most athletic people in the world? Total medal count is one way to measure, but it may not be the best. Another measurement would take into account the relative number of medals compared to a country's total population: Olympic medals per capita, or (to avoid many decimal places) the number of medals each nation took home per million people in its population. Medals per million gives us a very different ranking. By this measure, citizens of the Caribbean island of Granada are by far the most athletic, with 9.5 Ol...

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