Laszlo Birinyi's Latest Prediction Is Interesting, but Worth Nothing

Last Updated Jan 13, 2011 5:33 PM EST

Laszlo Birinyi is president of Birinyi Associates, a stock market research and money management firm. His prognostications often attract the attention of the media. For example, earlier this month Birinyi forecasted that the rally in U.S. stocks still had a long way to go. His forecast was that the S&P 500 Index may increase to 2,854 on Sept. 4, 2013.

Upon reading this, my first thought was to admire the precision of his forecast. Not only was he forecasting an S&P 500 of 2,854 (as opposed to, say, 2850), but he gave the very specific date of Sept. 4, 2013. You just have to admire someone with such confidence that they can be so precise in their forecasts. He also forecasted that the S&P 500 will climb to 1,333 by year-end.

The question for investors is: Should you care what Birinyi, or any other guru for that matter, has to say about the market? Academic research has found that there are no good forecasters, be they stock market strategists or political advisors.

One of my favorite quotations on the subject of the value of forecasts comes from Wall Street Journal columnist Jason Zweig: "Whenever some analyst seems to know what he's talking about, remember that pigs will fly before he'll ever release a full list of his past forecasts, including the bloopers." Thanks to Taylor Larimore of the Bogleheads Forum, we have a record of at least one of Birinyi's prior forecasts.

In December 2000, Birinyi forecasted that the S&P 500 would close 2001 at 1,600. The index sat at 1,320 at the end of 2000, but unfortunately for Birinyi, it finished the year at 1,148. While he forecasted a rise of about 21 percent, the S&P 500 actually fell 13 percent. Why do people still listen when Birinyi (or any other guru) speaks?

The best advice I can give is that if you have to watch CNBC, whenever you are about to hear some guru's forecast, hit the mute button. It would also help to remember Warren Buffett's classic quote about forecasters: "A prediction about the direction of the stock market tells you nothing about where stocks are headed, but a whole lot about the person doing the predicting."

More on MoneyWatch:
Lessons from 2010: Diversification Matters and Forecasters Don't Don't Listen to Economic Forecasters Don't Lose Sight of What's Really Important When Dollar-Cost Averaging Makes Sense When Dollar-Cost Averaging Doesn't Make Sense
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    Larry Swedroe is director of research for The BAM Alliance. He has authored or co-authored 13 books, including his most recent, Think, Act, and Invest Like Warren Buffett. His opinions and comments expressed on this site are his own and may not accurately reflect those of the firm.

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