Estimates are Just That - Estimates

Estimates are Just That - Estimates

May 30, 2023

“The function of economic forecasting is to make astrology look respectable”

– John Kenneth Galbraith, Economist and Author.

Can we all agree that estimates are just that – estimates?  Or we could call them an educated guess – some more educated than others but all the same.  However, what we have learned over the past few years is what has been an Historical fact– the average prognosticator has a really difficult time predicting where the economy, markets, interest rate, jobs (blah, blah, blah) will be moving in the short run.  Always has and most likely always will.

Unfortunately, as inaccurate as their track record has been, this does not stop the soothsayers from gazing into their Crystal Ball while financial journalism continues to salivate in the ongoing inaccuracies – as it sensationalizes the headlines.  One who has a conspirator’s personality may believe they are secretly intertwined – for the profitability of both parties. Conversely, their profitability can become the longer-term investor’s peril.

What in the world do I mean by this?  Well, the financial media needs “eyeballs and clicks” to continue or increase its revenues from advertising.  What better way to increase those revenues than a scary headline to draw the emotional fear from investors.  Simply stated, take a missed estimate and tie it to an End-Of-The-Financial-World-As-We-Know-It headline.  To the financial journalism industry, they are doing a “happy dance” every time (which seems to be quite often) they are missed.

You may be saying, ok - but how does this benefit the companies of the prognosticator?  Most of the said prognosticators (analyst, market strategist, economist) are employed by large investment firms, brokerage firms or banks.  Where does a substantial portion of the revenue come from?  Trading.  So, let’s say they are advising their clients (both institutions and retail) on where to “move their money” TODAY.  As their guidance changes (is inaccurate) they now go back to the clients and have them readjust their portfolio to the new “guess.”  Cha-ching.   Don’t believe me – look at their quarterly reports on revenue from trading. 

As a side note, this is by no means saying they are not smart people (much smarter than I) – they holster fine pedigrees.  But the reality is – the vast data is overwhelming and constantly changing, every minute of every day.  Not sure how anyone can make rational sense of it and then extrapolate it into a certainty over the next quarterly report.  Essentially, they are playing a losing game – the deck is stacked against them to begin.

Understanding this, what is the solution? It comes from the most reliable source of investing – Warren Buffett.  “Forecasts may tell you a great deal about the forecaster; they tell you nothing about the future.”  My recommendation, short-term prognostication is for speculators - although most speculators falsely believe they are investing.  If you truly are an investor, short term noise should be viewed as just that – Noise.  The only thing that should matter to a long-term investor is your plan – a date specific, dollar specific, written financial plan.  And if your plan hasn’t changed – don’t change your portfolio.  Wow, how boring is that?!


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