At the end of one year and beginning of the next, it's economic forecast season. Being in this business - and not following the mainstream Wall Street crowd - I know that no one owns a crystal ball and though attending these economic forecasts may be interesting - one would be foolish to spend money on business resources, or place investment money based solely on the forecast.No one ever checks the forecasts for validity after the fact! When you do - it is actually fun to see just how far off they were. Not because I want to make fun of the forecasters - it's just that the future is unpredictable and when we really think about it - it makes sense that there are no accurate crystal balls. It's affirming to see a practical idea confirmed.I reference an article by Weston Wellington of Dimensional Fund Advisors in his Down to the Wire column, click here to see it. Thank God for Weston's work in this area. So enlightening! To save you some time - here's a synopsis. (Note - Weston is fun to read, so don't let my summary deter you from reading the article.)It was said as the forecasts came out - that there was much agreement among these experts who said:
- Stocks would be flat or even down. Nope - they were up around the world - often significantly.
- Infation would awaken. Nope - it barely budged though it was up slightly.
- Bond Yields would increase. Nope - went down a bit.
Some other specifics.
- Many thought a tumultous year for a new president and divisive politics would be a problem. "Seasoned" investors braced for crazy markets going down. Result: Calm markets that went up.
- North Korea issued threats and many thought next store neighbor South Korea markets would be impacted. Nope, they had a total return of 29.5% in local currency and 46% in US Dollar terms.
- Many experienced researchers thought China stocks appeared alarmingly vulnerable. The article provides several dire quotes from these researchers. Result: Total return 51.6% local currency and 50.7% in US Dollar terms! I guess they were "vulnerable" for significant upside! Ha ha.
Regarding these forecast misses, which happen EVERY YEAR, Weston Wellington says, "[It] reinforces the challenge of drawing a conclusion between positive or negative events in the world and positive or negative returns in the stock market."Finally the article references a $1,000,000 10-year bet between Warren Buffett and a hedge fund supporter. Just know that hedge funds are notoriously poor performers. A place for the wealthy to go to feel important while they lose money. So if you ever hear of a similar bet in future, bet against the hedge funds. Make sure it covers at least ten years as did Warren Buffett because anyone can get lucky in the short term.