Why experts’ investment forecasts should be questioned

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If some of the smartest minds are unable to accurately forecast the future, then what hope do investors have when it comes to trying to forecast the market?

One of the foremost experts when it comes to forecasting is veteran investor Howard Marks, co-founder of Oaktree Capital Management. He often talks about the challenge for investors in relying on forecasts.When it comes to forecasting and the role active fund managers play in trying to profit from their projections, he notes that a forecast of a projected outcome when it comes to stock picking is generally a function of many individual events occurring.

Marks calculates in this example that an investor has a 13 per cent probability that all five of these predictions will be correct, including that the share will perform as expected. That seems like a low chance of probability for an investor.

 

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