Monday, June 25, 2007

When Time Machines Break: A Mid-Year Look At The Pros' Fearless Forecasts

On December 27th, 2006, BusinessWeek Online published Fearless Forecasts from the Pros.

The pundits, strategists, and prognosticators fearlessly predicted the mid and year-end numbers for the Dow, the S&P, the Nasdaq, and the Russell 2000.

As June comes to an end, it is time to examine just how accurate the pros have been in their mid-year forecasting. Due to constraints of both time and space, this first installment will examine only the forecasting for the Dow Jones Industrial Average.

Out of the 80 pros polled, only 74 made a prediction for the mid-year Dow. William Greiner from UMB Asset Management was the most bullish, predicting 13,750. Greiner's forecasting was accurate enough in 2005 to be awarded the BusinessWeek Stock Market Strategist of the Year.

The most bearish pro was Vinny Catalano from Blue Marble Research. Catalano's prediction of 10,600 was more than 3 standard deviations from the mean analyst prediction of 12,604. Joining Catalano with a greater than 3 standard deviation forecast was Barry Ritholz of Ritholz Research and Analytics, author of a very successful finance blog The Big Picture. Ritholz's prediction of 10,750 puts both him and Catalano in the group that can only be described as way out there.

Monday's Dow close of 13,352 puts Charlie Crane of Scotsman Capital Management in the running to peg Friday's mid-year number. Crane's 13,350 prognostication is flanked on both sides by pros who may find their predictions very near the actual mid-year number, barring any extreme volatility between Tuesday and Friday, June 29th.

Charting the Pundits' Prognostications

  • The red square and bar denote predictions that fall within a tight range of the close of 13,352 on Monday, June 25th.
  • 9 of the 74 pros are within 2% of Monday's close.
  • 6 of the 74 pros' predictions were farther than 2000 points (>15%) from Monday's close.
  • The standard deviation is 603.92
  • The distribution is negatively skewed -1.42

Stay tuned for more analysis of the Pro's Fearless Forecasts.


barry said...

I am amazed that anyone takes these things remotely seriously.

They are big double issues that sell lots of ads; Those who participate in these forecasts do so for the publicity (present company included).

These are my two favorite commentaries on forecasting and the news:

Lose the News
The value of the financial news complex seems to be hugely misunderstood by investors.

Folly of Forecasting
Take what the pundits say with a grain of salt, myself included.

Woodshedder said...

Barry, thanks for stopping by, and for the humility you present.

I will check out the links.

Bill said...

I've started to think that Barry doesn't believe his own bearshit, and it's just a P.T. Barnum to get press attention.

johndeere said...


Woodshedder said...

Barry, after thinking about this a bit, it seems to me that making a prediction and getting it wrong would not be good for a research and analysis business.

In the articles you linked, you do clearly implore the investor to take every pundit, including yourself with a grain of salt.

I still seems to me that it would be bad for business. I guess the added publicity offsets any negative effects from the prognostications.

skh.pcola said...

"The Big Picture" is not a finance blog, it is an economics blog. To be more precise, it is an economics blog scribed by a flaming liberal afflicted with BDS who predicts gloom and doom based on the simple fact that GW Bush is the president. Barry possesses lots of knowledge that I would like to have, but he is slanted so far to the left that his credibility is near nil.