In a world of breathless predictions, the most valuable tool might be Google Archive, which allows you to go back in time and see how old prophecies fared.
We don't do this enough. The ultimate value of any forecast isn't whether it sounded nice.
It's whether it eventually becomes correct. Spend some time in Google Archive, and you can't help but notice that the vast majority of forecasts about the economy or the stock market are utterly wrong in hindsight.
Company earnings (Not) Predicting the GFC… It's 2007, and the stock market is booming to an all-time high. Analysts foresee the US S&P 500 earning $US94.20 in 2008, a new record. "It's a really good investing environment in general right now," an analyst tells Bloomberg. In fact, it was one of the worst in history. The S&P ended up earning half the amount analysts expected in 2008, and stocks plunged nearly 50%. Another whoops. By 2009 gloom was pervasive. Bloomberg lamented "the longest earnings slump since the Great Depression." Analysts expected the S&P 500 to earn $US53 a share in 2010, and $US63 in 2011. …Or the recovery In reality, the index earned $US83 and $US96, respectively. Here again, for the last five years you could have been a top performer by taking analysts' earnings estimates and multiplying or dividing them by two. Can we just admit that no one knows what earnings will do in the future? Nobel-winning psychologist Daniel Kahneman recently remarked: "Many people now say they knew a financial crisis was coming, but they didn't really. After a crisis we tell ourselves we understand why it happened and maintain the illusion that the world is understandable. In fact, we should accept the world is incomprehensible much of the time." Foolish takeaway The value in calling out bad predictions isn't to point fingers at those who have gotten it wrong. It's to point fingers at those who listen to and put faith in those predictions, assuming that suddenly, this time, experts can accurately see the future when history shows - conclusively - that they can't. Instead of trying to guess the future – or listening to those who are guessing themselves - investors should be concentrating on the things that actually matter in investing - finding great quality businesses, buying them at attractive prices and holding them for the long term or until your investment rationale no longer holds. And leave the predictions to the "experts".
