Forecasting is a prediction of what the future will look like. Often it’s no better than a guess, so if you want to refer to it in another term, ‘punting’ would be a suitable replacement.
The media loves a forecasting story because readers, listeners and viewers often have investments in property or share markets. People can get very emotive over potential gains, or suggested losses.
Recently BIS Shrapnel, at the behest of QBE LMI, produced a report suggesting house prices will rise 20% over the next three years.
Fantastic, go out and buy another house, right?
QBE LMI is the largest mortgage insurer in the country; I’m sure they’re hoping people take out loans and push property up 20%, but right now the numbers of housing loans taken out are falling, which is usually an indicator prices are not going up.
Next point, QBE LMI is very exposed if house prices drop – so it’s always worth checking who is doing the forecasting and why?
Previously, forecasting sins could be swept under the carpet, along with the remnants of the people’s money who listened to you.
Now the internet has become a useful tool for finding poor past predictions and highlighting how unreliable forecasting is.
In the US, CNBC host, Jim Cramer’s on air share picks were compared against the performance of the Dow Jones Index over a two year period. Cramer’s picks were up 12%, yet the index was up 22% during the same period.
And during the height of the financial crisis, Cramer recommended a buy on several banks that eventually went bankrupt, or were taken over at a fraction of their previous value.
As comedian, Jon Stewart said, “If I’d only followed CNBC’s advice, I’d have a million dollars today… provided I’d started with a hundred million dollars.”
Peter Mancell is a director of Mancell Financial Group and FYG Planners AFSL 224543. This information is general in nature and readers should seek professional advice specific to their circumstances. If you want help with your financial future, we think we’re Australia’s best financial advisor.
