Predicting Outcomes for the Year of the Snake.. Or Not?

It’s the Year of the Snake.  The water snake to be precise.  There are many predictions that have emerged, and depending on your zodiac sign, the year’s outlook may be bright and rosy or (horror of horrors) dark and gloomy.

But before you rush out with your hard-earned money to follow the predictions for your zodiac sign (mine says that I have no lottery luck and to be wary of people cheating my money), slow down and take a step back.

Many of us tend to follow expert opinion when deciding on something we have little or no knowledge in.  But should we follow the advice blindly? If you are in need of surgery (touch wood!), would you pick a doctor who shares his success and failures in operation procedures or one who hems and haws when asked? In the financial media, the track records of market predictors are seldom given. Expert opinions are often highly sought-after but yet, there’s no mention by the writers on how accurate these experts’ past predictions have been.

Studies have shown how hard it is for the experts to make accurate predictions of the future, ranging from politics to sports and of course, finance. Their predictions were often 50-50 or worse (in case you were wondering, yes, a throwing a dart at a board blindfolded could possibly yield the same result).

These are some samples of failed predictions made by market prognosticators in 2012:

  • A top strategist from Morgan Stanley said in March 2012 that the S&P 500 index in the USA was set to fall by 15% to 1167 by the end of 2012. The end result? The S&P 500 was at 1426 on 31 Dec 2012.
  • On 21 August 2012, a strategist from Nomura predicted that the S&P 500 index would fall by 20-25% from 1413.17 over the next three months. What happened? On 21 Nov 2012, the S&P 500 was at 1391, a drop of less than 1.7%.

We could go on, but you get the idea.

So what can you do when you are at a loss when faced with a torrent of market predictions? You could Moneyball them! Moneyball’s the title of a baseball book written by Michael Lewis that was published in 2003 (some of us also remember it as a movie starring Brad Pitt in 2011). The book’s main premise was a real-life story of how a baseball team manager, Billy Beane improved his team’s performance by keeping track of his players’ talents and performance through the use of better statistics. In other words, Beane had a better way to measure performance.

Moneyball the financial media by keeping a small record of the predictions made by different prognosticators each time you come across them and then double-check their predictions with what actually happened. Over time, you can know who the trustworthy folks worth listening to are. In fact, you can go one-up and Moneyball yourself! Keep a small journal of investing-related predictions you have made and see how well you fare – you’ll definitely become a better investor because of it.

Motley Fool’s co-founder David Gardner has a very strong passion towards Moneyballing the Financial World and for a very simple reason – it makes our financial world a better place, and you, a better investor.

Motley Fool’s purpose is to help the world invest, better. Click here now for your FREE subscription to Take Stock Singapore, The Motley Fool’s free investing newsletter. Written by David Kuo, Take Stock Singapore tells you exactly what’s happening in today’s markets, and shows how you can GROW your wealth in the years ahead. 

The information provided is for general information purposes only and is not intended to be personalised investment or financial advice.