Beware Of Clairvoyants and Economic Forecasters!

10 Feb Beware Of Clairvoyants and Economic Forecasters!

The only function of economic forecasting is to make astrology look respectable.
John Kenneth Galbraith

Everywhere you look these days, clairvoyants clocked up as experts are falling over one another to register their predictions as to what the markets will do next.

There are few certainties about the future other than that it is uncertain. But this hasn’t stopped overpaid City analysts trying to predict the markets. The media loves this sorts of thing but if previous record is anything to go buy, forecasters are best ignored.

A US based firm CXO Advisory collected data of 68 top experts and tracked their forecasts on the US stock market between 2005 through to 2012. It found 42 of the 68 gurus had accuracy scores below average, and the average market prediction offered by these experts has been below 50% accuracy. Turns out, a coin toss is a far better predictor than market pundits!

Stanford University psychologist Philip Tetlock tracked 28,000 forecasts by hundreds of experts in a variety of domains and found the average expert was only slightly more accurate than a dart-throwing monkey. He also found absolutely no correlation between the accuracy of their forecast and having a PhD, being an economist or even access to classified information! The more bullish they are about their forecasts, the more likely they are to be way off the mark.

It is only natural that we crave specific knowledge of the future. But such knowledge is rarely available. So as the predictions roll in, be it on house prices or on where the FTSE is heading next, I urge you to pay them same attention you would a fortune teller!