I recently pointed out an errant recession forecast made a year ago by a person who has been more or less been predicting an economic slump since 2011. My intention was to spark a discussion of why forecasts are so counterproductive, and why no one should make investments based on them. Instead, a discussion of passive bulls mocking active bears broke out. This was not what I intended.
I have been harping on about this for more a decade and figured, by now, everyone surely understands that market forecasts - indeed almost all forecasts - are folly.
Alas, my assumption was proven wrong. Thus, we go once more unto the breach, to remind everyone what we know about forecasts and predictions, and why they are so rarely right:
1. Not everything is a forecast
This is especially true in terms of markets and the economy, and so a reasonable definition of a forecast is as follows: It pertains to a specific asset or asset class and/or economic data series, at a given price or level and a specific time. It also must be disprovable. Making a statement that cannot be proven or disproven is not a forecast; it’s a theoretical academic debate.
Consider the following statements: “Stocks tend to go higher” or that “recessions are cyclical.” These are not forecasts because they lack specifics. The statement: “The Dow will hit 25,000 by the second quarter of 2018,” on the other hand, has all the elements of a forecast and it will either be proven right or wrong.
2. We are very bad at forecasting
Examples are everywhere: economic forecasts, earnings estimates, market forecasts and expectations of future technologies, not to mention election predictions. The data overwhelmingly show that as a species, we are simply awful at this.
3. We are even worse at predicting our own behaviour
I have been highly critical of those surveys that ask people to describe what they plan to do in the future. Whenever you see someone forecasting their own behavior, what you are getting is a read of their emotional state. Whether it's holiday shopping, company hiring plans, voting intentions - people say what they are feeling at the time the question is posed, and it is not predictive of what they are actually going to do.
4. Random and unforeseeable events ruin forecasts
Try going back and looking at the record of forecasts made years or decades ago. Most of them are inaccurate for the simple reason that they were overtaken by random or unforeseeable events.
5. Technology is tricky
We are particularly bad at making predictions about technology. This goes back a long way, to claims in the late 19th century that no one would ever need or want a telephone, or that cars would never replace horses and buggies. And folks are still at it, despite their inability to get it right. Check Microsoft chief Steve Ballmer's 2007 prediction that Apple iPhone would never catch on.
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6. Forecasts are marketing
If forecasts are so useless, why are they so prevalent? I don’t know of a clearer way to say this: A forecast is usually accompanied - directly or otherwise - by an effort to sell something. Predictions are inherent in marketing campaigns. It's as simple as that.
7. Random luck
People tend to over focus on the outcome rather than paying closer attention to the process. This leads to an overemphasis on guesses that were merely lucky and therefore cannot be replicated.
8. Asymmetric risk
Bad forecasts are quickly forgotten, while those who make accurate predictions that are nothing more than the result of luck or random chance get elevated to stardom. This is the entire underpinning of why people make forecasts - and especially radical scary ones - in the first place. The potential rewards for being right can be significant, while being wrong has little downside.
9. Failing to acknowledge a mistake
Many people engage in the sort of ego-driven decision-making that leads to bad outcomes. Rather than admit error, they prefer to stay invested based on their predictions rather than do what's best as an investing strategy. Renowned technician Ned Davis literally wrote the book on this and the title says it all: Being Right or Making Money.
10. Making better predictions
There is some hope for improvement in forecasting: Phillip Tetlock, author of Superforecasting: The Art and Science of Prediction, explored how forecasters can use data and logic to improve the probabilities of reaching a desired outcome. Note the word "probability" instead of prediction.
Now, if only investors would pay heed.
Barry Ritholtz is a columnist for Bloomberg
Mercer, the investment consulting arm of US services company Marsh & McLennan, expects its wealth division to at least double its assets under management (AUM) in the Middle East as wealth in the region continues to grow despite economic headwinds, a company official said.
Mercer Wealth, which globally has $160 billion in AUM, plans to boost its AUM in the region to $2-$3bn in the next 2-3 years from the present $1bn, said Yasir AbuShaban, a Dubai-based principal with Mercer Wealth.
“Within the next two to three years, we are looking at reaching $2 to $3 billion as a conservative estimate and we do see an opportunity to do so,” said Mr AbuShaban.
Mercer does not directly make investments, but allocates clients’ money they have discretion to, to professional asset managers. They also provide advice to clients.
“We have buying power. We can negotiate on their (client’s) behalf with asset managers to provide them lower fees than they otherwise would have to get on their own,” he added.
Mercer Wealth’s clients include sovereign wealth funds, family offices, and insurance companies among others.
From its office in Dubai, Mercer also looks after Africa, India and Turkey, where they also see opportunity for growth.
Wealth creation in Middle East and Africa (MEA) grew 8.5 per cent to $8.1 trillion last year from $7.5tn in 2015, higher than last year’s global average of 6 per cent and the second-highest growth in a region after Asia-Pacific which grew 9.9 per cent, according to consultancy Boston Consulting Group (BCG). In the region, where wealth grew just 1.9 per cent in 2015 compared with 2014, a pickup in oil prices has helped in wealth generation.
BCG is forecasting MEA wealth will rise to $12tn by 2021, growing at an annual average of 8 per cent.
Drivers of wealth generation in the region will be split evenly between new wealth creation and growth of performance of existing assets, according to BCG.
Another general trend in the region is clients’ looking for a comprehensive approach to investing, according to Mr AbuShaban.
“Institutional investors or some of the families are seeing a slowdown in the available capital they have to invest and in that sense they are looking at optimizing the way they manage their portfolios and making sure they are not investing haphazardly and different parts of their investment are working together,” said Mr AbuShaban.
Some clients also have a higher appetite for risk, given the low interest-rate environment that does not provide enough yield for some institutional investors. These clients are keen to invest in illiquid assets, such as private equity and infrastructure.
“What we have seen is a desire for higher returns in what has been a low-return environment specifically in various fixed income or bonds,” he said.
“In this environment, we have seen a de facto increase in the risk that clients are taking in things like illiquid investments, private equity investments, infrastructure and private debt, those kind of investments were higher illiquidity results in incrementally higher returns.”
The Abu Dhabi Investment Authority, one of the largest sovereign wealth funds, said in its 2016 report that has gradually increased its exposure in direct private equity and private credit transactions, mainly in Asian markets and especially in China and India. The authority’s private equity department focused on structured equities owing to “their defensive characteristics.”
The smuggler
Eldarir had arrived at JFK in January 2020 with three suitcases, containing goods he valued at $300, when he was directed to a search area.
Officers found 41 gold artefacts among the bags, including amulets from a funerary set which prepared the deceased for the afterlife.
Also found was a cartouche of a Ptolemaic king on a relief that was originally part of a royal building or temple.
The largest single group of items found in Eldarir’s cases were 400 shabtis, or figurines.
Khouli conviction
Khouli smuggled items into the US by making false declarations to customs about the country of origin and value of the items.
According to Immigration and Customs Enforcement, he provided “false provenances which stated that [two] Egyptian antiquities were part of a collection assembled by Khouli's father in Israel in the 1960s” when in fact “Khouli acquired the Egyptian antiquities from other dealers”.
He was sentenced to one year of probation, six months of home confinement and 200 hours of community service in 2012 after admitting buying and smuggling Egyptian antiquities, including coffins, funerary boats and limestone figures.
For sale
A number of other items said to come from the collection of Ezeldeen Taha Eldarir are currently or recently for sale.
Their provenance is described in near identical terms as the British Museum shabti: bought from Salahaddin Sirmali, "authenticated and appraised" by Hossen Rashed, then imported to the US in 1948.
- An Egyptian Mummy mask dating from 700BC-30BC, is on offer for £11,807 ($15,275) online by a seller in Mexico
- A coffin lid dating back to 664BC-332BC was offered for sale by a Colorado-based art dealer, with a starting price of $65,000
- A shabti that was on sale through a Chicago-based coin dealer, dating from 1567BC-1085BC, is up for $1,950
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NO OTHER LAND
Director: Basel Adra, Yuval Abraham, Rachel Szor, Hamdan Ballal
Stars: Basel Adra, Yuval Abraham
Rating: 3.5/5
A MINECRAFT MOVIE
Director: Jared Hess
Starring: Jack Black, Jennifer Coolidge, Jason Momoa
Rating: 3/5
