About forecasting

This is the time when editors of financial publications try to outsmart each other with their insights and forecasts. I used to save the forecasts that sounded most interesting and compelling – especially those relying on extensive analysis.

Occasionally I checked and reviewed them. After a few years I stopped because I could not use them. Those who were right the previous year were wrong the next one. The batting average was dismal in spite of their resounding names. Do you remember Barton Biggs insisting on CNBC in the Fall of 2007 that the market was ready for a huge move on the upside?

The point is that any forecast taken in isolation is meaningless. When I was managing $4 billion, I subscribed to the best strategy services. The fact that they were wrong was not the issue. I wanted to understand their assumptions so that I could revise my strategies accordingly.

It is difficult to be correct when one has to forecast one year ahead. Furthermore, the more precise the forecast is, the higher are the chances of being wrong. I found that the odds of being right decrease exponentially with the time horizon of the forecasts.

The way I solve these inconsistencies is that I begin with the most reliable starting point, the point with the highest probability of success – understanding what is happening now. This is the reason I look in depth at current financial conditions. The charts are factual. Once you know what is happening, I adjust the portfolio to the risk and opportunities of the present environment.

The drawback with this approach is that one has to make frequent transactions to reflect the changes in the marketplace. For instance, from September 2nd to November 21st the market dropped 37.4%. The outcome was that we were forced to sell aggressively.

Yes, volatility is high, financial risk is beyond the safe limits, the economy is growing slowly. By monitoring closely these developments we will find opportunities. You have to play the game if you want to win.

To find out more about my in depth view of the markets and my strategy just visit our website https://www.peterdag.com/. You can review The Peter Dag Portfolio, free of charge of course. You can also call me at 1-800-833-2782 to discuss your specific money management needs.

George Dagnino, PhD
Editor, The Peter Dag Portfolio
Since 1977