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Bill Gross is a smart investor and has an impressive, but certainly not perfect, forecasting record. That’s true for everyone in the chaotic investment universe. The guru scorecards maintained by CXO Advisory Group clearly demonstrate the limited successes of the market wizards. Here is a Link to their final scorecard summary:
A 60% to 70% correct scorecard range roughly defines the upper limit of forecaster’s accuracy. The overall cumulative score was slightly under 50% accuracy That doesn’t match a fair coin toss odds. Over the entire rather long time span of the study, 68 gurus were monitored. Only 8 tested at the elevated plus 60% accuracy level. That’s only 11.8% of this elite population.
Would Mr. Gross make that highest grade? I don’t know since he was not included in the study. But he most certainly would not score any higher. So his predictions are just that - simply a professional’s predictions. Seasoned investors accept the fact that wrong predictions and wrong investment decisions will be made. That’s an integral part of the investing discipline. We all do it.
The most simplistic argument that motivates the Gross forecast is the regression-to-the-mean principle. Taken over a rather extended timeframe, equity returns have been in excess of the overarching historical long term averages. Well he might be right, but he also might be wrong.
I was surprised that both the Gross analysis and the Ben Carlson column did not say much about the influence of inflation rate on market returns. Statistically, it’s an important factor in terms of adjusting nominal returns to real returns, and in terms of gross equity market rewards. Here is a Link to a Carlson article, published about a year ago, that addresses the significant impact of inflation rate on annual returns:
These data demonstrate that inflation rate is an important factor in propelling the equity battleship. High inflation decreases that battleships forward speed. Given today’s inflation, that’s at least one positive signal for a healthy stock market return.
Unfortunately, the market battleship is influenced by a number of other governors. The stock market will always be somewhat speculative because of a host of uncertain and interacting elements. Too bad, but the CXO guru grades consistently showed just how challenging market predictions are, even for experts. Inflation matters.
Comments
Bill Gross is a smart investor and has an impressive, but certainly not perfect, forecasting record. That’s true for everyone in the chaotic investment universe. The guru scorecards maintained by CXO Advisory Group clearly demonstrate the limited successes of the market wizards. Here is a Link to their final scorecard summary:
http://www.cxoadvisory.com/gurus/
A 60% to 70% correct scorecard range roughly defines the upper limit of forecaster’s accuracy. The overall cumulative score was slightly under 50% accuracy That doesn’t match a fair coin toss odds. Over the entire rather long time span of the study, 68 gurus were monitored. Only 8 tested at the elevated plus 60% accuracy level. That’s only 11.8% of this elite population.
Would Mr. Gross make that highest grade? I don’t know since he was not included in the study. But he most certainly would not score any higher. So his predictions are just that - simply a professional’s predictions. Seasoned investors accept the fact that wrong predictions and wrong investment decisions will be made. That’s an integral part of the investing discipline. We all do it.
The most simplistic argument that motivates the Gross forecast is the regression-to-the-mean principle. Taken over a rather extended timeframe, equity returns have been in excess of the overarching historical long term averages. Well he might be right, but he also might be wrong.
I was surprised that both the Gross analysis and the Ben Carlson column did not say much about the influence of inflation rate on market returns. Statistically, it’s an important factor in terms of adjusting nominal returns to real returns, and in terms of gross equity market rewards. Here is a Link to a Carlson article, published about a year ago, that addresses the significant impact of inflation rate on annual returns:
http://awealthofcommonsense.com/2015/08/how-inflation-affects-market-returns/
These data demonstrate that inflation rate is an important factor in propelling the equity battleship. High inflation decreases that battleships forward speed. Given today’s inflation, that’s at least one positive signal for a healthy stock market return.
Unfortunately, the market battleship is influenced by a number of other governors. The stock market will always be somewhat speculative because of a host of uncertain and interacting elements. Too bad, but the CXO guru grades consistently showed just how challenging market predictions are, even for experts. Inflation matters.
Best Wishes.