The Futility of Forecasting In The Stock Market

Most stock market forecasts are hopeless. The investor is better off betting on the fundamentals rather than market direction.

by Sanjoy Bhattacharyya

The professional investor desperately craves to know the future. The true mission is to read tomorrow’s newspaper today. Brokers, fully aware of this innate desire, are quick to sell gullible investors placebos — stock recommendations, earnings estimates, market forecasts, price targets — of minimal value.

Forecasting earnings, prices or the direction of the stock market with precision in the short-term is hopeless. Irving Fisher’s prescient comments just before the Great Depression in 1929 remain unsurpassed for being totally off the mark! But the story remains the same whether it was the dot-com bubble, the financial melt-down of 2008 or the Asian crisis in 1997-98.

What of the poor fund manager who needs to out-perform every month just to keep his job? As investors pile into a rising market and the avalanche of money builds, his best attempts to stay rational and focus on the long haul are destroyed. The need to invest first and investigate later is forced on him. Rather than be caught lagging behind his peers, he is better off watching Bloomberg like a hawk for every twitch in stock prices and making bets on quarterly earnings! The resultant herd mentality presents true opportunity for the more placid but truly consilient investor.

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One Response to The Futility of Forecasting In The Stock Market

  1. james moylan says:

    I have a web site where I give advise on penny stocks and stocks under five dollars. I have many years of experience with these type of stocks . If their is anyone that is interested in these type of stocks you can check out my web site by just clicking my name. I would like to comment about futility of forecasting the stocks market. Now the question should be not trying to time a broad index like the standard and poors five hundred’ but timing a narrow sector like an exchange traded fund that tracks airlines’ steel’ coal or a single country fund. If you buy anyone of the sector funds or single country funds after they have declined by 80% from their highs or even more and than sell the funds when they have reached the point where they are just 20% below their all time highs you will have no problem beating the standard and poors five hundred index by two to one.

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