Why analyst forecasts are lessons in futility

WITH the end of 2018 and the start of 2019, comes the usual barrage of reports on strategists' stock market forecasts for the coming year. And rest assured, just like every year, someone is going to ask me where the FTSE 100 or the S&P 500 is going to be at the end of 2019.

It is common knowledge that all forecasts are wrong, but many investors still think forecasting one-year stock returns is a useful exercise. When it comes to long-term forecasts, there might be some value in them, but return forecasts over time frames like one year or less are extremely unreliable. In fact, anyone who uses these forecasts for investment decisions should seriously reconsider their investment process.

Let's take, for instance, the forecasts made for stock markets at the beginning of 2018 by strategists from prominent banks around the world.