Forecasting or Pandering?

The Wall Street Journal’s recent article on forecasting (an article on forecasting), speaks to how inaccurate forecasters and forecasts typically are. When I read it, the following quote hit home:

“Sometimes forecasting isn't even about the future, some researchers say. The true goals of some predictions, says Kesten Green, a forecasting researcher at Monash University in Melbourne, Australia, include lighting a fire under the sales force or alarming the public into some sort of action.”

This holds true in the public policy arena and in the financial markets. It often appears that the forecasts are crafted to get attention, get elected, promote a product or strategy, sell a book, or all of the above! When the forecaster’s goal is "hey, listen to me," it's understandable why some forecasts are so extreme. The more in tune with public sentiment and the more outlandish the forecast is - the more attention it will likely garner. Remember, these ‘bed partners’ have similar goals; forecasters want attention and media outlets want eyeballs. Is this goal best achieved with a demure and soft-spoken guest or with one adamantly postulating an alarming scenario?

Consider this: With public confidence in the financial market very low right now, is the book touting Dow 36,000 or Dow 6,000 going to sell better? Is this forecasting or pandering?

It is possible to articulate a case for whatever you want others to believe, particularly if you selectively choose data and interpret it liberally. That doesn't make it correct. While it is sometimes interesting to contemplate what might happen, no one really knows. Worrying about what might happen, keeps individuals and corporations from acting in the here and now.

I think the market is so incredibly complex that it is not possible to make accurate forecasts. As a result, I rely on an adaptive process that modifies portfolio holdings as conditions evolve. This way the portfolio is based on what is actually happening, as opposed to what may or may not happen in the future.
This does not mean that I do not have opinions. I just don’t manage your portfolios based on my opinions because the market does not care what Michael Guilsher thinks should happen…


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