FT Alphaville: Never Ever Make Predictions
The end of one year and the start of another leads to many predictions. However, a look at investment predictions reveals that predictions don’t tend to have any accuracy to them.
It doesn’t matter if the predictor is an expert in their field or not. The major annual predictions from the big Wall Street banks are often wide of the market’s actual results. In fact, the average prediction tends to simply take an existing trend and extrapolate it.
That’s why many analysts see a good market return in 2025. It follows on the recent past from 2024 and 2023’s returns.
Over time, the average prediction runs in a much lower band than actual market returns. The experts aren’t good at predicting major market swings, both lower and higher. Failing to predict a market crisis is one thing.
If the experts can’t make good predictions, what indicators can investors use? One potential measure that may work is volatility. Hedge funds tend to also use volatility targeting as a way of better predicting extreme market moves.
While predictions often fail to pan out, it’s still important to plan for potential market scenarios ahead of time. That way, investors won’t get blindsided with a rapidly-changing market. And can even set themselves up to profit, especially during fearful times.
To read the full analysis on the trouble with predictions, click here.
