Expectations is Not Forecasting

MJG

Hi Guys,

Here is a Link to a superior article from Morgan Housel that highlights the big difference between expectations and forecasts:

http://www.fool.com/investing/2016/08/22/expectations-vs-forecasts.aspx?source=iaasitlnk0000003

The distinction is significant. Housel and I would have a very friendly coffee discussion together. We agree on most things. Expectations are typically formulated based on a careful review on relevant historical data sets. Forecasting belongs to soothsayers. Forecasting does become more meaningful if odds based on expectations are attached to it.

Best Regards.

rforno

Morgan Housel is awesome.(tm)

I still say many of these analysts don't know the industry they cover beyond cookie-cutter MBA financial analysis techniques. It's almost like Wall Street needed to give some of its own a job, so they found a way to generate quarterly 'estimates' they can use to create trading catalysts for the markets and short-term traders. Give any MBA holder an Excel spreadsheet, a few SEC documents, access to a Bloomberg terminal, and poof! They create conditions for tradeable events.

But this also creates a mindset where "long term" is at most one quarter or until the next report that may or may not meet 'expectations' set by the brokerage equivalent of the so-called 'ratings agencies'.

Estimates aside, don't get me started on the value of Wall Street "analysis" either ... ugh.

catch22

MJG noted:
"Expectations are typically formulated based on a careful review on relevant historical data sets. Forecasting belongs to soothsayers. Forecasting does become more meaningful if odds based on expectations are attached to it."

This just about covers all of the investing turf, eh?

I'll choose #3 at this time.........the odds based expectations thingy.