Cut forecasters some slack, but don’t bet on accuracy either – by Nastassia Arendse (Mineweb.com – October 21, 2015)

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Some get the call right more often than not.

Humans are inherently obsessed with knowing the outcomes of the future. In some cases, forecasters are bad at predictions. The business of forecasting happens all the time when it comes to financial markets, especially from the likes of Goldman Sachs, JP Morgan, Citigroup, and the myriad of other investment banks that employ analysts. The financial media and investors clearly believe that the forecasts add value, or they wouldn’t tune in.

The majority of investors subscribe to the investment newsletters and reports published by the Wall Street oracles. Most of them employ sophisticated and complex models that are used to forecast growth and other market factors. Evidence from events such as the dot.com bubble and the 2009 financial crisis show that you would perform just as well if you had simply guessed.

“There are too many different opinions and it is also not clear what the time horizon of the various forecasts is,” says Rowan Williams, Director at Nitrogen Fund Managers.

No one likes a bearish trader

Wall Street’s experts and research companies put in a significant amount of effort and time to produce every imaginable type of stock service such as newsletters or bulletins all alleging to have an idea of the future performance of commodity and bond markets. Those who work there say that there is a tendency on Wall Street to be forgiving of bullish traders who end up being wrong.

Williams agrees that there is an institutional imperative for Wall Street Banks to be bullish on the equity markets and bullish in general. It is the correct default option as one is more likely to be right than wrong. It is an optimistic viewpoint, which people prefer, and it is good for sales, which is what Wall Street banks focus on.

“The positive nature of investors and brokers is trying to look up and be positive, and it sort of emanates throughout the stock market,” says Mike Tonkin portfolio manager at Cape Town-based Old Mutual Wealth.

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