Profit Hunters Club

ProfitHuntersClub · Site Admin Joined: 31 Mar 2006 Posts: 25

THE CANADIAN PRESS
October 29, 2007

TORONTO - If you wonder how much credence to place in economic predictions, you're not alone.

"We find that the forecasts not only frequently miss the mark, but they do so by a wide margin," writes Myles Zyblock, director of capital markets research at RBC Dominion Securities.

"In fact, after accounting for historical forecast errors, it's hard to take any of the point forecasts very seriously."
Zyblock's conclusion, based on a check of the accuracy of a long-running semi-annual survey of economists by the Federal Reserve Bank of Philadelphia, is nothing new.

He notes that the lamentable record of forecasters was documented at least as far back as 1933, and a study in 2005 added that beyond a minimum threshold greater expertise does not imply greater accuracy.
"This probably has something to do with the strong positive relationship between the level of expertise and the level of overconfidence," Zyblock comments.

On the brighter side, "experts seem to have a much better understanding than non-experts of what is currently going on," he adds.
"Maybe an analyst's role is best left to analysis rather than forecasting the future."

Zyblock observes that the current U.S. economic consensus points to 2.7 per cent growth over the next 12 months. However, in view of the margin of error of past forecasts the likely outcome could be anywhere between 0.1 per cent and 4.7 per cent, so "we can be 95 per cent confident that we will either be in a growth recession, enjoying boom times, or somewhere in between. This doesn't seem like much help at all."

His advice: "A good portion of our investment decision-making should emphasize process rather than the predictability of an outcome. Studies of portfolio choice consistently show the toxic impact of overtrading, the power of low-price-to-earnings investing and the value that dividends and dividend growth bring to portfolio performance."

Source: http://finance.sympatico.msn.ca/investing/stocks/article.aspx?cp-documentid=5642752