What is the Real Goal of Forecasting?

A recent article in the Wall Street Journal discussed how bad forecasting typically is. The quote that resonated with me was:

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.

That is true in the public policy arena when someone has an axe to grind. In the financial markets, it seems like the forecast are often designed just to get attention. If the goal is “hey, look at me” it’s understandable why some of the forecasts are so extreme. The more in tune with public sentiment and the crazier the forecast the more attention it gets.

With public confidence in the financial markets very low, no one wants to hear about a Dow 36,000 forecast, but a Dow 6,000 forecast will have lots of eager listeners. Is that really forecasting or just trying to sell a latest book, newsletter or money management system?

One can always make a case for whatever they want, if they selectively choose data and interpret it liberally. While it is sometimes interesting to contemplate what might happen, no one really knows. Worrying about what might happen often keeps investors from acting in the here and now and ends up hurting them in the long run.

The market is so incredibly complex that it is not possible to make consistently accurate forecasts. As a result, we rely on an adaptive process based on academically based information that modifies portfolio holdings as conditions evolve. That way portfolios are based on what is actually happening, as opposed to what may or may not happen in the future.

Remember: Opinions are like noses, everyone has one!


About billriley

Chief Executive Officer, Chief Compliance Officer A co-founder and shareholder, William Riley is a 33 year industry veteran, who observed, many years ago, that over time institutional investors typically outperform individual investors while accepting less risk. In his role as Chief Executive Officer, Bill works tirelessly to make the wealth management strategies used by the world’s wealthiest families and largest institutions available to our firm’s individual clients. Bill combines fundamental and technical analysis to minimize investment portfolio risk and maximize potential returns. He uses a variety of non-correlated asset classes, including alternative investments, to minimize portfolio volatility and seek absolute returns in down or flat markets. Finally, Bill believes in a comprehensive approach to wealth management that fully coordinates and seamlessly integrates portfolio management, risk management and asset protection, trust, estate, tax and charitable planning. Prior to co-founding Riley Wealth Management ,LLC, Bill held management positions at Merrill Lynch, UBS, Raymond James, Paine Webber and J.C. Bradford. Bill founded Fort Worth branches for Raymond James and J.C. Bradford. Prior to entering the financial services industry, Bill ran his families closely held businesses. Bill’s experience operating family businesses combined with his wealth management experience makes him uniquely qualified to advise entrepreneurs and business owners on a variety of matters including complex and sensitive issues relating to business succession. Bill’s degrees and designations included a Masters Degree in Business Administration (MBA), the Chartered Financial Consultant designation (ChFC), the Chartered Life Underwriter designation (CLU) and the Wealth Management Specialist designation (WMS). A Fort Worth native, Bill is a TCU alum and active in many civic and charitable organizations. Bill and his wife, Marsha, now reside in Colleyville, and they have four grown children and four grandchildren. When he is not working on portfolios or studying financial markets, Bill can be found on the golf courses of Ridglea Country Club.
This entry was posted in Uncategorized. Bookmark the permalink.