As I have said before, you're best served by ignoring forecasts when making investment decisions. Today, my Buckingham Asset Management colleague Kevin Grogan will take a look at the reliability of forecasts.
Gustav Torngren and Henry Montgomery studied behavioral biases in forecasts in their study, "Worse Than Chance? Performance and Confidence Among Professionals and Laypeople in the Stock Market." Participants in the study were asked to select the stock that would outperform each month from a pair of stocks. All of the stocks were well-known names, and players were given the company's name, industry and trailing 12-month performance for each stock. There were two groups of people that participated in the study:
- Undergraduates in psychology
- "Experts" such as portfolio managers, analysts, and brokers
Follow the series: Our Own Worst Investing Enemy