I was reminded of this famous quotation by a recent study of Wall Street research firms’ track records when projecting the longer-term returns of the various asset classes. The quote is from the Danish physicist Niels Bohr.
I mention GMO because it famously has been way too bearish on U.S. equities over the past decade. And the firm has received its share of criticism and ridicule, though this year’s bear market has softened some of that criticism. Sebastian reached his conclusion by compiling the projected asset class returns from 17 firms in 2012, and then comparing those projections to what actually happened over the subsequent decade. The results are summarized in the accompanying chart, below.
It would be easy to conclude that those results are devastating, and at a minimum they are sobering. In an interview, however, Sebastian emphasized that capital market assumptions are not worthless. But his results show that they should not be taken as gospel.
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