Vanessa Drucker: 20/20 hindsight


Last week I hosted a panel at the CFA Institute in London on the subject of dealing with the aftermath of a crisis. The speakers, from the American firm High Frequency Economics, discussed their forward-looking expectations for global markets: America strong, Euroland constrained, and Japan doomed by demographics.

As moderator, I reflected, what is most fascinating about the aftermath of the turmoil? A retrospective glance at the years following a watershed event offers a rare opportunity to assess which predictions panned out and which floundered.

It is not easy to rate forecasters. Market prophecies and opinions abound, but usually elicit scant follow-up. Television channels and other media need constantly replenished material, with no incentive to discredit their own pundits, and hey, who wants to track losers anyhow?

But here is grist for the mill: Stockpickers from Barron’s Roundtable have handily beaten the S&P 500 since 2002, with an average CAGR of 13.3 per cent versus the market’s 1.5 per cent. In 2013, the Roundtable average of 21.2 per cent trailed the S&P’s 28.2 per cent, mainly dragged down by ill-timed bets by Fred Hickey on gold and Felix Zulauf on emerging markets. Among star predictors, Marc Faber outperformed the S&P by 19.7 per cent over 11 years, Zulauf by 18.7 per cent over 12 years, Oscar Schafer by 14.5 per cent over 12 years and Meryl Wittmer by 13.2 per cent over 12 years.

Examining a wider data set of 68 experts from 2005-2012, CXO Advisory group has created rankings from publicly available American stock market forecasts. The methodology is limited by some small sample sizes and differing time horizons, but yields an accuracy list headed by David Nassar, Ken Fisher, Jack Schannep, David Dreman, James Oberweis, Steve Sjuggerud, the Cabot Market Letter and Louis Navellier.

Who wins the booby prize for the worst predictions in recent years? Meredith Whitney is notable for spooking the world with unfulfilled warnings of a widespread municipal bond collapse, as does the entire army of Cassandras who envisaged hyperinflation. The blue ribbon, however, goes to Ben Bernanke, who assured us in 2007 that, “the impact on the broader economy and financial markets of the problems in the subprime market seems likely to be contained”.

Vanessa Drucker is the American editor of Fund Strategy magazine