Saturday, November 23, 2013

A Broken Clock is Right Twice a Day

The Wall Street Journal had a story this morning about how stock market strategists are taking a cautious approach going into 2014.  That would matter if they could actually predict the market, which they can't.  From the story:

Wall Street strategists have a reputation for being stock-market cheerleaders, helping to boost sales of stocks at their brokerage firms. Since 2000, stocks have returned an average annual gain of 3.3%, well below the 10% predicted by strategists. And in every year they have predicted stocks would rise, missing all four down years. 
At the same time, however, stocks have outpaced analyst forecasts in seven of those years, with one year, 2005, in which forecasts essentially hit the nail on the head.

So, they missed all the down years and only really got it right in 1 of 10 years, a .100 batting average.  What about this year?

 Strategists had started off 2013 calling for a moderate rise in stocks, although the forecasts were for a better one than they are now expecting for 2014. At the beginning of 2013, the average forecast from strategists at 15 banks was for a 7.7% gain, which would have left the index at 1532, according to Birinyi.
Not even close.

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