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.