Jun

4

Harry Browne's book about why the best laid investment plans go wrong has a very precise and useful chapter on how to evaluate forecasters starting with keeping records of the actual forecasts, when they were made what the price was, and what transpired. These are usually very different from the humble self evaluations "we erred on calling the high in silver" we said 1080 but it was 1065. A hilarious review of such is contained in edspec.

Jeff Watson comments:

To me, the value of forecasters, pundits, touts, advisors, mavens, etc lies in the opportunity in fading them. When one says that everyone in the world should be short t bonds, I look at the other side. When a guy rides a motorcycle around Europe and says to buy German stocks and forget about them for 5 years, I take a look at the other side. When the newsletters and blogs tell you to do one thing, the move has already happened or else they're talking their book or gambling. 

Kim Zussman comments:

Years ago, the late Louis Rukeyser published a newsletter which listed picks of various market experts either interviewed on Wall $treet Week or profiled in the letter. Each issue had a running return for each pick, as well as the average - which was usually very good.

I noticed once in a new issue that a stock had been dropped from the list of recommendations, with a note to the effect "manager no longer covers". Also noticed the bad return for this stock had been removed from the running total average. Had you bought all the recommendations, your results would definitely have been worse than reported!

There is a similar problem with extrapolating stock index data from over 30 years ago, before indexing was widely available / utilized. Think of how difficult it would have been to own 500 stocks of the SP500, in correct proportion, adding and deleting simultaneously with the index. This may be an "indexation premium", which ought to be gone by now.


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