Skip to main content

Market-Predicting Gurus Worse Than Flipping A Coin

Image
By
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.

Labels

Labels:

Popular posts from this blog

Diversification: Disciplinarian of Disciplinarians

By
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. ...
Read more

Should We Go Back on the Gold Standard?

By
If you watched the Republican presidential debates, you might have noticed that a number of  candidates yearn for a return to the gold standard—that is, that every dollar issued by the government would be backed by a comparable value in gold bars that were stashed away in a government vault. Sen. Ted Cruz of Texas argued that the dollar should have a fixed value in gold, and Sen. Rand Paul of Kentucky added that printing money without backing in the precious metal destroys the value of our currency. Mike Huckabee, former governor of Arkansas, thinks that if not gold, then the dollar could be pegged to a basket of commodities. All are mostly concerned that printing money will cause runaway inflation.   But there may be several problems with this return to the fiscal system of the late 1800s and early 1900s. One is that inflation has barely budged even as the Federal Reserve Board was piling one QE stimulus on top of another, and the government was adding records amoun...
Read more

65-80 Year Olds … A New and Exciting Demography

By
Should today’s 70-year-old American be considered “old?” How do you define that term these days? Statistically, your average 70-year-old has just a 2% chance of dying within a year. The estimated upper limits of average life expectancy is now 97, and a rapidly growing number of 70-year-olds will live past age 100. Perhaps more importantly, today’s 70-year-olds are in much better shape than their grandparents were at the same age. In most developed countries, healthy life expectancy from age 50 is growing faster than life expectancy itself, suggesting that the period of diminished vigor and ill health towards the end of life is being compressed. A recent series of articles in the Economist magazine suggest that we need a new term for people age 65 to 80, who are generally healthy and hearty, capable of knowledge-based work on an equal footing with 25-year-olds, and who are increasingly being shunted out of the workforce as if they were invalids or, well, “old.” Indeed, the a...
Read more