Nissan-Honda Merger Talks and the Value of Market Predictions

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MERGERS,AUTOMOTIVE INDUSTRY,MARKET PREDICTIONS

This article discusses the merger talks between Nissan and Honda, highlighting the motivations behind such moves in the global automotive industry. It then delves into the practice of making market predictions, arguing that despite the inherent difficulty in accurately forecasting market movements, engaging in prediction exercises can be valuable for testing assumptions, deepening understanding, and fostering learning.

Good morning. Nissan and Honda are holding merger talks. From an industry and investor point of view, this makes sense. The global car industry is capital intensive, highly competitive and buffeted by change. Still, cars all look pretty much the same already; a few more mergers, and they will all be the same. Email us about the best car you’ve ever owned: robert.armstrong@ft.com and aiden.reiter@ft.com. The new year is approaching, which means that it’s prediction season.

In markets, the great majority of predictions are too vague to be interesting, or correct only by chance, or wrong. This makes sense: at its core, the market is already a well-designed prediction machine for corporate performance and economic fundamentals. Seeing that the market has placed the wrong probability on a significant future trend or event is very hard — the domain of brilliant people operating at the peak of their powers in a fleeting window of market inefficiency. Should us normals even bother with market predictions, then? Yes, for three reasons. Taking the risk of making a public prediction forces you to test your own assumptions; it is a way of finding out what you really believe. Predictions force you to look closely; they are a way to think about what is already priced in. Finally, and probably most importantly, making a prediction and turning out to be wrong is a great way, possibly the best way, to learn. Unhedged is celebrating prediction season with a look at stock market sector

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