Forecasting Follies

Article by Moore Stephens

December for most people is the season when we all look back on the year that was and reflect on the events that have affected us. In the markets it is also the month that analysts and economists forecast for us what lies ahead for next year. Unfortunately this is more often than not wrong, although we can take some solace in the fact that they only get it somewhat wrong when growth is good, as opposed to getting it really wrong when growth is weak. In this article by Alain Shorter (going back to April this year) he discusses the results of a McKinsey survey, including the fact that over the past 25 years analysts on average have predicted growth in stock earnings of 10-12 percent in the U.S., when the actual growth was half that at 6%.