Why You Should Ignore 2015 Market Forecasts

December 31, 2014  |  Finance

As the Wall Street analysts chime in with their 2015 S&P 500 predictions, let’s revisit how the six bulge bracket firms did with their prognostications over the past four years.

Annual S&P 500 Forecasts

Bank20112012201320142015
Average (Banks)13781338154319642175
UBS13501325142519502250
Barclays14201330152519002100
Credit Suisse12501340155019602200
Goldman Sachs14501250157519002100
JP Morgan14001430158020752200
Bank of America Merrill Lynch14001350160020002200
Actual1258142620832083*

2011201220132014
Average Projected Rise9.9%6.4%8.2%6.3%
Actual Rise0.3%13.4%29.6%12.7%*

The mean S&P estimate has been considerably off-target each year: by +960 basis points in 2011, -700 basis points in 2012, a whopping -2140 basis points in 2013, and as of this morning, -640 basis points this year.

What’s most interesting is that the clustering effect has been very pronounced, with five of the six analyst predictions each year falling within a 100 point range (1350-1450 in 2011, 1250-1350 in 2012, 1500-1600 in 2013, and 1900-2000 in 2014) – ranges which failed to capture the actual result in every instance. 

So what is behind the errant clustering? The biases of anchoring and recency are likely culprits, with analysts anchoring to a baseline and extrapolating from recent trends. We believe career risk is also at play: as investor Joel Greenblatt put it, “It’s much safer to be wrong in a crowd than to risk being the only one to misread a situation that everyone else had pegged correctly.”

But how do we reconcile the incentive for pundits to not stray from the consensus – and thus minimize career risk – with the bombastic pundits that we all love to rail on? Why aren’t they concerned about career risk? Well, here’s the catch:

In punditry, if you are going to be wrong, it pays to be spectacularly wrong.

We explain using the following matrix:

Reaction to outcomes by prediction type

Prediction TypeOutcome: CorrectOutcome: Incorrect
ConsensusExpectedForgivable
ContrarianSubdued PraisePink Slip
Wildly ContrarianHeroCelebrity

The first prediction type (“Consensus”) is greeted with minimal credit when correct and minimal blame when incorrect. As we discussed with the S&P 500 forecasters, pundits focused on career preservation adhere to this ‘safety in numbers’ approach. The last prediction type (“Wildly Contrarian”) is typically made by pundits who crave media attention. Regardless of outcome, they are able to parlay their provocative predictions and media prowess into cash by writing books, hitting the speaking circuit, and developing a cult-like following. This is how One-Hit Wonders and Broken Clocks are born.

That leaves the middle prediction type, which we refer to as the ‘Bermuda Triangle’ of punditry. These pundits are contrarian enough to create career risk for themselves but not contrarian enough to garner mainstream attention. Correct predictions are greeted with modest praise — say, a pat on the back from a few colleagues — while incorrect predictions draw intense scrutiny. Low reward, high risk.

Our hunch is that the best pundits are stuck in this Bermuda Triangle, quietly amassing first-rate track records but lacking a platform to reach a wider audience. Instead, our professional ranks and airwaves are cluttered with pundits who make Consensus and Wildly Contrarian predictions. Nate Silver is a rare exception, having made the leap from quant to superstar. We would argue that Silver was aided by the criticism leveled at him by conservatives, which created a false perception that his election predictions were wildly contrarian when they were in fact only moderately so.

PunditTracker aims to disrupt the prediction industry by offering a common platform for everyone – including yourself  — to make predictions. By leveling the playing field and holding everyone equally accountable, we strive to introduce a much-needed dose of meritocracy into the system.

 

This is an updated post from previous years. If you think you can best these pundits, head over to PunditTracker to make your own predictions for 2015. We will be adding many predictions in the weeks ahead and will grade you afterwards!

Grading Byron Wien’s Predictions for 2014

December 29, 2014  |  Finance

We started tracking Byron Wien’s annual predictions in 2010, grading those that meet our threshold for concreteness (not vague and/or subjective) Here is how his predictions for 2014 are looking with a few days left in the year:

PredictionOutcome
S&P 500 total return will approach 20% for full year after 10%+ correction during yearFALSE (no correction)
US real GDP growth will exceed 3% AND unemployment rate ends year below 6.3%TBD on GDP growth (unlikely)
Dollar will appreciate, trading below $1.25 against the euro and buying 120 yen during yearTRUE
Nikkei 225 will rise to 18000+ early in year but market suffers 20%+ correction in second halfFALSE (no correction)
Chinese GDP growth between 5.8%-6.2% AND another disappointing year for mainland equitiesFALSE (equities did great)
Mexico and South Korean market do well; other Emerging Markets do notFALSE (Mexico)
WTI crude price exceeds $110 during the yearFALSE
Corn goes to $5.25 a bushel, wheat to $7.50 AND soybeans to $16.00.FALSE
10-year US treasury yield rises to 4% AND short-term rates stay near zeroFALSE
Democrats retain Senate and gain seats in HouseFALSE

Tally: 1/9, with one yet to be determined

Here is how Wien’s track record looks over the past five years — warning: it’s not pretty. ROI is the average return had you bet $1 on each of his predictions based on the corresponding odds at the time of the prediction; it effectively awards more credit for out-of-consensus predictions that come true:

20102011201220132014Cumulative
Hit Rate0/9 (0%)4/8 (50%)3/8 (38%)1/10 (10%)1/9 (11%)9/44 (20%)
Yield$0.00$1.42$0.85$0.15$0.19$0.49

For more details on all of Wien’s predictions, visit PunditTracker’s Finance Page, where you can also make your own predictions for 2015 (we will grade you as well). We will update Wien’s page with his 2015 predictions once they are released.

Grading Bob Doll’s Predictions for 2014

December 29, 2014  |  Finance

We have been tracking the annual predictions of Bob Doll (formerly of Blackrock, now at Nuveen) since 2010. Here is how his predictions for 2014 are looking with a few days left in the year:

PredictionOutcome
US Real GDP will grow 2.8%-3.2% AND Housing Starts will surpass 1 millionTBD on GDP growth (unlikely)
10-year Treasury yield ends year higher than 3% (prediction = moves toward 3.5%)FALSE
US equities record a good year (graded as 5%+) despite enduring a 10% correctionFALSE (no correction)
Cyclical stocks will outperform defensive stocksFALSE
Dividends, stock buybacks, capex, AND M&A will all increase at a double-digit rateTBD on capex
US dollar will appreciateTRUE
Gold price will fallTRUE
Municipal bonds outperform taxable bondsTRUE
Active managers outperform index fundsFALSE (way off)
Republicans increase lead in House AND lose SenateFALSE Senate)

Tally: 3/8, with two yet to be determined

Here is how Doll’s track record looks over the past five years. ROI is the average return had you bet $1 on each of his predictions based on the corresponding odds at the time of the prediction; it effectively awards more credit for out-of-consensus predictions that come true:

20102011201220132014Cumulative
Hit Rate5/9 (56%)3/7 (43%)4/9 (44%)5/9 (56%)3/8 (38%)20/42 (48%)
ROI$0.86$0.75$0.84$0.95$0.75$0.84

For more details on all of Doll’s predictions, visit PunditTracker’s Finance Page, where you can also make your own predictions for 2015 (we will grade you as well). We will update Doll’s page with his 2015 predictions once they are released.

Apple analysts whiff on iPhone estimates (…again)

January 27, 2014  |  Finance

The headlines for Apple’s earnings are focusing on the 51 million iPhones shipped, which fell shy of Wall Street’s consensus estimate of 55 million. For us at PunditTracker, the more interesting question is why — yet again — were the analyst’s estimates were so tightly clustered? As Fortune’s terrific spreadsheet shows, 19 of the 30 analysts predicted between 54 and 56 million iPhones. This range seems shockingly narrow for a consumer technology product, particularly given all the ‘proprietary channel checks’ being done. 29 of the 30 pundits were in a range between 52.0 and 58.5 million, which of course failed to capture the actual result. Only Andy Hargreaves of Pacific Crest came in below 52 million (his prediction was 50.93).

We discussed potential reasons for this errant clustering in a post last year.

 

Barron’s Roundtable: 2013 Performance & Updated 2002-13 Rankings

January 8, 2014  |  Finance

We have been tracking the annual investment picks of the Barron’s Roundtable since 2002. After a remarkable run from 2002-10, during which the Roundtable trounced the S&P 500 for nine consecutive years, the last two years have been marked by underperformance:

200220032004200520062007200820092010
Roundtable Avg-5.7%45.7%20.9%9.1%22.2%15.7%-21.4%31.4%17.8%
S&P 500-24.5%19.7%8.0%5.2%10.3%4.2%-36.0%19.7%9.8%

201120122002-12 CAGR
Roundtable Avg-4.9%10.5%11.4%
S&P 500-1.1%11.6%0.8%

 

So would 2013 mark a reversion to the ‘good old days’ or would the stock-pickers struggle again? Let’s take a look at how their picks fared this past year:

Roundtable Member2013 Return
Average Roundtable21.2%
Meryl Witmer60.9%
Oscar Schafer37.7%
Mario Gabelli34.7%
Brian Rogers32.6%
S&P 50028.2%
Abby Joseph Cohen18.7%
Scott Black10.8%
Felix Zulauf0.0%
Fred Hickey-26.1%

The Roundtable underperformed again in 2013, posting a 21.2% return on average versus the 28.2% of the S&P.  The group’s performance was dragged down by a few members, in particular Fred Hickey. Due largely to his big bet on gold, Hickey’s picks returned -26.1% on average. Felix Zulauf, the second best roundtable performer since 2002 (behind Marc Faber, who did not make picks this year), also had a tough year given his bet on emerging markets. Scott Black and Abby Joseph Cohen underperformed as well.

On a positive note, several members posted stellar years, notably Meryl Witmer who made three picks, all of which posted 49%+ returns. Oscar Schafer, Mario Gabelli, and Brian Rogers also outperformed the index.

For a full breakdown of all the pundit’s individual picks in 2013, click here.

Despite the sluggish performance in recent years, the group’s long-term record remains admirable. The Roundtable members have posted a 13.3% average CAGR since 2002 versus 1.5% for the S&P.

Here is how they have fared on an individual basis, relative to the corresponding S&P performance for the years in which they made picks:

ReturnS&POutperformance
Total (2002-13, 12 years)13.3%1.5%11.8%
Marc Faber (2002-12, 11 years)22.8%3.1%19.7%
Felix Zulauf (2002-13, 12 years)20.2%1.5%18.7%
Oscar Schafer (2002-13, 12 years)16.0%1.5%14.5%
Meryl Witmer (2002-13, 12 years)14.7%1.5%13.2%
Barton Biggs (2002-03, 2 years)3.4%-4.9%8.3%
Art Samberg (2002-08, 7 years)4.2%-3.9%8.1%
John Neff (2002-07, 6 years)9.8%2.8%7.0%
Mario Gabelli (2002-13, 12 years)8.2%1.5%6.7%
Scott Black (2002-13, 12 years)5.4%1.5%3.9%
Brian Rogers (2012-13, 2 years)22.9%19.6%3.3%
Abby Joseph Cohen (2002-03, 2005-13, 11 years)4.2%2.4%1.8%
Fred Hickey (2005-13, 9 years)4.0%4.1%-0.1%
Archie MacAllaster (2002-11, 10 years)-1.9%-0.2%-1.7%

For a full breakdown of the Roundtable performance from 2012-13, click here.

 

For those new to our site, PunditTracker levels the playing field by allowing users to compete with the ‘experts’. If you’d like to make your own picks on year-end targets for the S&P, Gold, Bitcoin, Oil, Twitter, and more, head over to our Finance section and use the ‘Vote Now’ button to make your picks. As with the Roundtable pundits, we will hold you accountable at year end!

 

Vote: Worst Financial Prediction of 2013

December 22, 2013  |  Finance

We have been recapping 2013 financial predictions over the past few weeks, and the message is clear: the finance pundits had a tough go of it this year. The prevailing sentiment heading into 2013 was caution, if not outright pessimism, which of course has not played out in the equity markets.

It wasn’t easy, but after sifting through all the prognostications, we have come up with four candidates for the Worst Financial Prediction of 2013. We’ll let you make the call on which is the worst through our voting widget below.

 

(1) Byron Wien: Gold will reach $1900/oz and S&P 500 will fall below 1300

As we discussed in a blog post earlier this month, Byron Wien of Blackstone had another woeful performance with his surprise predictions this year, going 1-for-10, bringing his total to 8-for-35 since we started tracking him in 2010.

Wien’s long gold/short S&P call could hardly have been more wrong, as the S&P is now trading above 1800 (up ~30%) while gold is hovering around $1200 (down ~30%).

 

(2) Gene Munster: Apple will release a television

Taken in isolation, this prediction from Piper Jaffray analyst Gene Munster was a perfectly reasonable one. Several other pundits we tracked predicted the same, and 48% of our users agreed that an Apple television was in the cards this year.

The reason that Munster’s prediction makes our Worst list is because he has made this prediction before…. again and again. In fact, starting in mid-2009 Munster has predicted an Apple television every six months or so and of course has been wrong each time. Lest you think we are exaggerating, here are the links to prove it: August 2009, March 2010, September 2010, June 2011, December 2011, May 2012, November 2012, March 2013, November 2013.

If Munster doesn’t win worst prediction this year, he may well be a candidate again next year as he has now pushed back his Apple television timeline to the first half of 2014. Regardless, he wins our first entry into the Broken Clock Hall of Fame.

 

(3) Harry Dent: Dow Jones Index will fall below 5000

Ever since his book The Great Crash Ahead was published in 2011, financial newsletter writer Harry Dent has been hitting the television circuits to sell his message of doom & gloom. His prediction that the S&P 500 would fall 30-50% in 2012 proved wildly wrong.

His prediction for 2013, that the Dow Jones would tumble below 5000, was equally bold and equally wrong. The Dow is at 16000 today. Could Dent simply be early? If so, we will be there to give him credit – we are still tracking his “Dow falls to 3000 by 2022” prediction on our site.

 

(4) Wall Street Analysts: S&P Price Targets

Here were the S&P forecasts of six bulge bracket firms at the start of each of the past three years.

Bank201120122013
Average (Banks)137813381543
UBS135013251425
Barclays142013301525
Credit Suisse125013401550
Goldman Sachs145012501575
JP Morgan140014301580
Bank of America Merrill Lynch140013501600
Actual125814261818*

201120122013
Average Projected Rise9.9%6.4%8.2%
Actual Rise0.3%13.4%27.5%

The mean S&P estimate has been considerably off-target each year: by +960 basis points in 2011, -700 basis points in 2012, and a whopping -1930 basis points so far this year. Moreover, the clustering effect has been very pronounced, with five of the six analyst predictions each year falling within a 100 point range (1350-1450 in 2011, 1250-1350 in 2012, and 1500-1600 in 2013) – ranges which failed to capture the actual result in every instanceWe discussed potential reasons for the errant clustering in a previous post. Regardless, given this performance, should we pay any attention to all the 2014 targets that are coming out lately?

 

Okay, those are the candidates – now it’s your turn to vote! We will reveal the “winner” on January 9.

 

Head over to our Finance section to make your own predictions for 2014 and see if you can crack our User Leaderboard. PunditTracker’s user voting platform aims to surface more “Nate Silvers” by allowing people like yourself to build your own public prediction track record. After all, with the financial ‘experts’ falling flat on their faces in 2013, shouldn’t they be replaced?

We will be adding plenty of new predictions as they come in over the next few weeks, so make sure to check back frequently. You can also see the profile pages for all the pundits discussed above, including a full breakdown of their predictions since we started tracking them.

 

Bob Doll’s Grade in 2013

December 16, 2013  |  Finance

We have been tracking the annual predictions of Bob Doll (formerly of Blackrock, now at Nuveen) since 2010. Heading into this year, he was 12-for-25 (48% hit rate) for the predictions we tracked, equating to a $0.82 Yield and F grade. Recall that Yield is the ROI had you bet $1 on the prediction based on those consensus odds; this is our core scoring metric and is used to arrive at our letter grade.

201020112012Cumulative
Hit Rate5/9 (56%)4/8 (50%)3/8 (38%)12/25 (48%)
Yield$0.86$0.83$0.77$0.82
GradeFFFF

As we await Bob Doll’s outlook for 2014, let’s recap how his predictions for 2013 are turning out.

PredictionOutcomeConsensusYield
Total3/7, 2 TBD$0.80
Europe exits recession by the end of 2013TRUE42%$2.38
US yield curve steepens in 2013TRUE62%$1.61
US stocks see an all-time high during 2013 (S&P 500 above 1565)TRUE61%$1.64
Emerging market equities outperform developed market equitiesFALSE62%$0.00
US multinationals outperform domestically focused companiesFALSE75%$0.00
US passes $2-3 trillion ten-year budget dealFALSE33%$0.00
Large-caps stocks outperform small-caps AND cyclical companies outperform defensive companiesFALSE52%$0.00
Dividends increase at a double-digit rate as pay-out ratios riseTBD
US nominal GDP growth will be less than 5% in 2013TBD

Consensus refers to how likely PunditTracker’s user base deemed the prediction to occur at the time it was made.

Final Tally

2013 Results: 3/7 (43% Hit Rate), 2 TBD, $0.80 Yield, F Grade

Cumulative Results: 15/32 (47% Hit Rate), $0.82 Yield, F Grade

 

Chris Ciaccia’s 2013 Grade & New Tech Predictions for 2014

December 16, 2013  |  Finance

We tracked seven of Chris Ciaccia’s (TheStreet.com) technology predictions in 2013. Here is how he fared.

PredictionOutcome
Intel will become a major foundry in 2013FALSE
Twitter will file to go public in 2013TRUE
Zynga will get acquired in 2013FALSE
Apple will release a television set in 2013FALSE
Microsoft will release a next-gen Xbox console in 2013TRUE
Nokia will lose market share in 2013TRUE
Steve Ballmer will leave Microsoft in 2013TRUE

Ciaccia’s best prediction was Steve Ballmer’s Microsoft exit. His Twitter IPO prediction (51% consensus, based on our user votes) was another standout. Ciaccia whiffed on the Zynga acquisition and Apple TV set; while Intel tiptoed into the foundry market, we graded his prediction (“major foundry”) as incorrect.

Final Tally: 4 Correct, 3 Incorrect (57% Hit Rate), $1.07 Yield, B+ Grade

Recall that Yield is our core scoring metric and calibrates predictions for how bold they are, giving pundits more credit for out-of-consensus predictions. It measures the average ROI had bet $1 on each of his predictions, based on consensus odds at the time.

Now here are Ciaccia’s predictions for 2014.

Apple will launch a watch in 214
Jawbone or Fitbit get acquired in 214
Snapchat valuation bubble will burst in 214
Square will go public in 214
Dropbox IPO will flop
Box IPO will flop
HP will enter the 3D printing market in 214
Apple will increase its share repurchase program in 214
John Chambers will step down as Cisco's CEO in 214
Intel will become more relevant in mobile in 214
Yahoo will acquired Business Insider in 214

For a limited time, you can make your own predictions on many of these. Head over to Chris Ciaccia’s PunditTracker profile page to do so.

Should we pay any attention to the 2014 S&P 500 forecasts?

December 15, 2013  |  Finance

As the Wall Street analysts steadily chime in with their 2014 S&P 500 predictions, let’s revisit how they did with their prognostications over the past three years.

Annual S&P 500 Forecasts

Bank201120122013
Average (Banks)137813381543
UBS135013251425
Barclays142013301525
Credit Suisse125013401550
Goldman Sachs145012501575
JP Morgan140014301580
Bank of America Merrill Lynch140013501600
Actual125814261818*

201120122013
Average Projected Rise9.9%6.4%8.2%
Actual Rise0.3%13.4%27.5%

The mean S&P estimate has been considerably off-target each year: by +960 basis points in 2011, -700 basis points in 2012, and a whopping -1630 basis points so far this year. Moreover, the clustering effect has been very pronounced, with five of the six analyst predictions each year falling within a 100 point range (1350-1450 in 2011, 1250-1350 in 2012, and 1500-1600 in 2013) – ranges which failed to capture the actual result in every instance.

So what is behind the errant clustering? The biases of anchoring and recency are likely culprits, with analysts anchoring to a baseline and extrapolating from recent trends. We believe career risk is also at play: as investor Joel Greenblatt put it, “It’s much safer to be wrong in a crowd than to risk being the only one to misread a situation that everyone else had pegged correctly.”

But how do we reconcile the incentive for pundits to not stray from the consensus – and thus minimize career risk – with the bombastic pundits that we all love to rail on? Why aren’t they concerned about career risk? Well, here’s the catch:

In punditry, if you are going to be wrong, it pays to be spectacularly wrong.

We explain using the following matrix:

Reaction to outcomes by prediction type

Prediction TypeOutcome: CorrectOutcome: Incorrect
ConsensusExpectedForgivable
ContrarianSubdued PraisePink Slip
Wildly ContrarianHeroCelebrity

The first prediction type (“Consensus”) is greeted with minimal credit when correct and minimal blame when incorrect. As we discussed with the S&P 500 forecasters, pundits focused on career preservation adhere to this ‘safety in numbers’ approach. The last prediction type (“Wildly Contrarian”) is typically made by pundits who crave media attention. Regardless of outcome, they are able to parlay their provocative predictions and media prowess into cash by writing books, hitting the speaking circuit, and developing a cult-like following. This is how One-Hit Wonders and Broken Clocks are born.

That leaves the middle prediction type, which we refer to as the ‘Bermuda Triangle’ of punditry. These pundits are contrarian enough to create career risk for themselves but not contrarian enough to garner mainstream attention. Correct predictions are greeted with modest praise — say, a pat on the back from a few colleagues — while incorrect predictions draw intense scrutiny. Low reward, high risk.

Our hunch is that the best pundits are stuck in this Bermuda Triangle, quietly amassing first-rate track records but lacking a platform to reach a wider audience. Instead, our professional ranks and airwaves are cluttered with pundits who make Consensus and Wildly Contrarian predictions. Nate Silver is a rare exception, having made the leap from quant to superstar. We would argue that Silver was aided by the criticism leveled at him by conservatives, which created a false perception that his election predictions were wildly contrarian when they were in fact only moderately so.

PunditTracker aims to disrupt the prediction industry by offering a common platform for everyone – including yourself  — to make predictions. By leveling the playing field and holding everyone equally accountable, we strive to introduce a much-needed dose of meritocracy into the system.

 

Reviewing Doug Kass’s Surprises for 2013

December 11, 2013  |  Finance

We started tracking Doug Kass’s annual surprises in 2012, a year in which he went 6-for-15 with a Yield of $0.80.  Since Kass tends to make bold, out-of-consensus predictions, we believe PunditTracker’s scoring system is ideal for grading him. Our “Yield” metric explicitly incorporates the boldness of predictions by measuring the average payout had you bet $1 on each of them, based on consensus odds at the time. We fully expect Kass to have a low hit rate/batting average, but if he gets even a few predictions right, his Yield could be well over $1.00, earning him a good grade.

While there are still several weeks to go in the year, we figured it was an appropriate time to quickly review how Kass’s 2013 surprises are shaping up:

U.S. real GDP growth expands by 1.5% or less in 2013FALSE
Michael Bloomberg becomes the leader of a new third party in 2013FALSE
The yield on the 10-year U.S. note stays between 1.5% and 2.0% in 2013FALSE
Merger activity declines in 2013TBD
Outflows from domestic equity funds and inflows into bond funds continue in 2013FALSE
Procter & Gamble splits into three separate companies in 2013FALSE
S&P 500 puts in its yearly high in the first two weeks of JanuaryFALSE
A tax on securities transactions is instituted in exchange for an increase in Medicare eligibility in 2013FALSE
Obama greenlights the Keystone Pipeline project in 2013FALSE
There will be a drought, a flash crash, a coronal mass ejection, and a cyber attack in 2013FALSE
Apple's stock price drops below $500 in 1Q13 but rises to over $600 by year-endTBD
Portfolio: Long Altisource Asset Management and Ford in 2013TRUE
A comprehensive New York Times expose reveals that all Chinese economic data has been fabricatedFALSE
Signs of life are found on Mars in 2013FALSE

Kass’ general theme was a downbeat take relative to consensus expectations, which at least as far as the stock markets have been concerned, ended up burning him in 2013. While stock picks such as Altisource worked out, most of his predictions are shaping up to be incorrect.

Final Tally

2013 results: 1 Right, 11 Wrong (8% Hit Rate), 2 TBD, $0.17 Yield, F Grade

Cumulative Results: 6 Right, 21 Wrong (22% Hit Rate), $0.44 Yield, F Grade

To see all of Kass’s predictions or to make your own predictions on various financial topics — including 2014 year-end prices for Gold and the S&P 500 — visit our Finance master page.

 

 

  1. Have a pundit you would like us to track? Or some general feedback on the site? Let us know!