Poor forecasting begets more poor forecasting. An article by Carl Bialik, the Wall Street Journal’s “Numbers Guy,” looks at how economic forecasts “didn’t fully anticipate the recession,” which then caused “recent forecasts…[to miss their] mark.” It’s easy to understand that a forecast can be thrown off due to unanticipated external shocks (like surging commodity prices or deep recessions). But forecasts in general deserve much greater scrutiny.

The article dives into forecasts in the hotel-industry, airlines, gas prices, and communications. While the article cherry-picks inaccurate forecasts, it also takes a look behind the forecasts, and even at how forecasts are measured to display very high historic accuracy. While forecasters attempt to provide clear insight into the future, they manage to haze over and manipulate their methods and success metrics.

From an investment perspective, uncertainty is the underlying nature of capital markets. Investors are better served by diversifying away company-specific risk and capturing market risk. That is a sustainable method of investing that delivers greater long-term performance than forecasting - which effectively increases unnecessary risk.

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