Forecasting is Fruitless
Steve Cook on Disciplined Investing

Syndication

Have You Seen This?

News

  • Make money by accessing all our Portfolios, the supporting research and Price Disciplines using our paid subscription blog, Strategic Stock Invetments. Our work is focused on making money for our Portfolios not as some academic exercise in Internet investing. Check our performance (audited)--our Dividend Growth Portfolio has beaten the S&P by 500 basis points per year for the last seven years but with a beta of only .62. (Mandatory Disclaimer: past performance is not a guarantee of future results.) We give you everything you need to duplicate our results, in particular, a strict price discipline for both Buying and Selling.

Have You Seen This?

Economics

   This Week’s Data

    The August Empire State Manufacturing Index came in at 12.1 versus expectations of 2.3 and -0.6 in July.
http://www.calculatedriskblog.com/2009/08/ny-fed-empire-state-manufacturing.html

   Other

    Good news on the wage front:
    http://mjperry.blogspot.com/2009/08/record-real-wage-increase-of-515-in.html

    And good news out of Japan:
    http://mjperry.blogspot.com/2009/08/japan-emerges-from-recession.html

    A different take on last week’s lousy July retail sales number:
    http://mjperry.blogspot.com/2009/08/wall-street-journal-u.html

    A look at world trade:
    http://www.ritholtz.com/blog/2009/08/world-trade-bottoms/

    Starting Monday off on a sour note:
    http://www.nakedcapitalism.com/2009/08/is-this-start-of-big-one.html

    Update on the traffic in the LA ports:
    http://www.calculatedriskblog.com/2009/08/la-area-ports-export-traffic-declines.html

Politics

  Domestic

Why subsidies, tariffs, etc hurt an economy:
http://cafehayek.com/2009/08/there-aint-no-such-thing-as-a-free-subsidy.html


  International War Against Radical Islam

The Market
    
    Technical

    It is almost that time of year again--historically, stocks perform their worst in September:
    http://online.wsj.com/article/SB10001424052970204251404574344761014399026.html

    Earnings season party ends:
    http://bespokeinvest.typepad.com/bespoke/2009/08/the-earnings-season-party-ends.html

    Monday morning thoughts from TraderFeed:
    http://traderfeed.blogspot.com/2009/08/morning-briefing-bounce-off-breakdown.html

   Fundamental
   
    Second quarter changes in the Berkshire Hathaway portfolio:
    http://seekingalpha.com/article/156271-berkshire-hathaways-portfolio-changes-for-q2-2009

     Thoughts on Investing--Forecasting is a Fruitless Task    

    Predicting the Market is a fool’s game.  Lots of folks try.  I put my two cents worth in daily.  But in the end, if anyone could discern with any consistency the direction of stock prices over the short or intermediate term, he/she would be lying on the beach;  and there still wouldn’t be anybody in the business that could predict Market direction. 

    Just listen to CNBC everyday.  There is a constant stream of experts who argue over what forces will drive stock prices; even if they agree on those forces, they disagree on which direction those forces will move the Market.  And even if one guy gets it all right in one year, he’ll be dead wrong in the next.  In other words, in making an investment decision, I don’t put a lot of weight on stock market predictions including my own (when, as and if I make them).

    Equally unproductive is listening to economic forecasts. Here again, I contribute to the chatter.  That said, I have been investing money for 40+ years and I can’t think of one economist who has ever got it right with any consistency.  The super bears like Nouriel Roubini will be right at some point, the same as a stopped clock is right twice a day.  The more optimistic economists like Larry Kudlow will tend to be right more often than a Roubini; but that is just because the economy spends more time growing than contracting.  Kudlow completely missed the latest recession.

    I have learned that it is easier and less frustrating to focus (1) on the long term valuation of a stock, creating a wide enough Valuation Range that doesn’t promote a lot of trading expenses and sets up the Discipline to avoid big losses and take money off the table at high valuation levels.  [The corollary to that is that at depressed Market price extremes (i.e. when prices are so divorced from the Valuation Model that our normal Disciplines are not working), I use technical analysis to limit losses], and (2) on the long term secular trends [growth and inflation] in the economy rather than the cyclical forces.
 









Posted 08-17-2009 8:27 AM by Steve Cook