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Financial Happenings Blog
Wednesday, May 02 2007

A big part of our investment focus is around the fact that you cannot manage to forecast what is going to happen in the markets.  Therefore we tend to keep an eye out for evidence of our opinion.  This is not hard - there is a fair bit of it out there.

Take this article from the Australian Newspaper on the 2nd of May.  It was talking about JP Morgan - one of the big financial service firms in Australia - and their forecast that the Australian stockmarket would be trading at a level of 5,930 points by the end of the year.  With the index now trading at 6,240 JP Morgan have decided that there forecast was wrong.

Of course, they don't jump up and down and say this.  They just 'revise' the forecast - up by almost 10% to 6,520 points. 

Is a forecast that is wrong by almost 10% 4 months into a year really all that useful?

Keep an eye out for failed forecasts.  They are all around us.  And don't be too swayed by them.

One important way of dealing with the lack of skill in forecasting is to carefully think about the asset allocation of portfolios.  Next week's e-mail update (Financial Fortnight that Was) will look at using asset allocation to build successful investment porfolios.  Please click here to subscribe!


Scott Francis

Posted by: Scott Francis AT 09:51 pm   |  Permalink   |  Email
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