Forecast gone wrong – once again!

Today P V Subramanyam posted on Facebook a comment on something he had posted last year.

Here are the two posts:

On 7th September 2015:

Shankar Sharma has called this a bear market..this means market has to drop 25% from here. So the sensex target should be 19000. Take care. 

PS: I am learning to write humor…

On 7th September 2016:

posted this a year back..no clue where is Shankar Sharma…but the sensex is not at 19000 for sure….

Just for records, Sensex closed at 28,978.02 points yesterday. It was at 24,893.81 points on 7th September 2015. So in the last year, it has risen by 16.41%. Does not look like a bear 😉

This is another case of a forecast going wrong. Why do the forecasters keep trying? Why do people keep listening and believing in these forecasts?

Well, there is a human tendency. There is an urge to know the future before it happens. However, it isn’t going to happen to anyone. Here is an excerpt from my book “Riding The Roller Coaster – Lessons from financial market cycles we repeatedly forget”:

There are many small stories in the epic Mahabharata. In one such story, a beggar comes to the Pandavas asking for some help. They are in the midst of a discussion, and Yudhisthir, the elder brother, asks the person to come the next day. Hearing this, his younger sibling, Bheema reminds Yudhisthir of the audacity of assuming that he would be alive tomorrow. This story highlights the importance of understanding uncertainty associated with the future.

Humans have always wanted to know the future. Astrologers and weather forecasters are among the most popular ones who make a living from this need. Someone who can see the future is called a “visionary”. This need to know the future is present in the world of business and finance, too. There are large numbers of analysts and forecasters, who make a living – in fact, many make a killing. However, the track record of such forecasts is not as impressive as one would like.

#RidingTheRollerCoaster – 235

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“Anything can happen” – says the Reformed Broker

More than a decade and a half later, once again the DotCom business is in the news in the investment world. Look at the valuation of the poster boy of DotCom – Facebook. It just surpassed the valuation of Berkshire Hathaway, the investment company of Warren Buffett.

Read this interesting blog post by Joshua Brown, the Reformed Broker.

#RidingTheRollerCoaster – 210

BRICs are out, welcome FANG

in the early years of the current millennium, Goldman Sachs came out with a report featuring four countries (Brazil, Russia, India and China – collectively known as BRIC nations) with huge population. As per the report, these countries were to drive the growth of the world economy and by 2050, China and India were slated to become two of the three largest economies in the world along with USA.

This report drew a lot of interest from various investors in stocks of companies in these countries. Large sums of money from various international investors entered these markets.

People started searching for countries similar to these four and the acronym started becoming bigger with the entry of South Africa and Indonesia in the club. Now BRIC was replaced by BRIICS.

Now, a story that was to be true for next 50 years, became unattractive in a little over 10 years and now very few talk about BRIC countries as a group.

I recently came across an article titled “BRIC is out and FANG is in”. Now what is FANG? This acronym stands for a group of four companies. This time it’s companies and not countries – does it mean “this time it’s different”? Well, time will tell.

Which are these companies? FANG stands for Facebook, Amazon, Netflix and Google. What is the future of these companies? What is the future of investments in the stocks of these companies? Well, the answer to both these questions is the same, “I don’t know”.

However, I would only like to caution everyone to avoid investing based on themes. Such themes often become fads and the components may also change.

Taking shortcuts while selecting your investments is a BAD idea. Be careful of the fads.

#RidingTheRollerCoaster – 200

This is what Aneesh Kothare writes

As George Santayana wrote “Those who cannot remember the past are condemned to repeat it”. This book lucidly illustrates the relevance of historical investor failings in our present/ future investment decisions. Presented in a clear & interesting manner, which holds the attention of experienced as well as new comers to the financial markets.

Aneesh Kothare wrote on Facebook