Monday, January 19, 2015

Mug's Games - This week's Coffee Break from Jim Parker

At the start of a New Year, the media is full of forecasts about the likely path of the economy and markets for the coming 12 months.

Most of these 'investment outlooks' are marketing exercises. The actual outcome of the forecasts doesn’t matter since few people recall them anyway. This week, Coffee Break looks at why so many market forecasts go awry.

Forecasts to Ignore
The famed US economist John Kenneth Galbraith once said that the only function of economic forecasting is to make astrology look respectable. Yet people keep on trying. In this article, Barry Ritholtz revisits some of the (now) embarrassing forecasts made this time a year ago.

Spotting Bad Forecasters
One characteristic of a bad forecaster is to make excuses when they are wrong. 'Oh, if the RBA had raised rates, I would have been right.' Another classic: 'It didn’t happen this year, but it will happen.' This writer argues that forecasters go wrong in assuming they control what they don’t.

Weasel Words
Media insiders will tell you that market pundits save their blushes when their forecasts prove to be wrong by using 'weasel words'—slippery phrases that provide an easy out. In this article, the writer lists 14 meaningless phrases that can make you sound like a market guru with actually saying much.

Jim Parker is a VP at DFA Australia Limited