We are sceptical about forecasts

  • Many investors are sceptical about the ability of fund managers to forecast how the investment cycle will evolve. We agree.
  • We believe that the best investment processes start with an accurate description of the present, not an imprecise view of the future.
  • We don’t think all forecasts are wrong; it’s just that there are too many variables which need to be included.
  • To prepare a traditional forecast of the performance of equities versus bonds we would need to forecast a minimum of six variables, including the actions of central bankers around the world.
  • Note too, this is before we try to account for the impact of unknown unknowns such as changes in geo-political risk and technology.
  • Experience suggests that consistently accurate forecasts are beyond the capacity of most investment analysts.
  • For more on this subject, please read James Montier’s classic Behavioural Investing.