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2007-08 Expert forecasters do worse than chance

Posted by Scott Keefer on Jul 7th, 2008

Now that the investment books for the 2007-08 financial year are closed it is worth having a look at some of the forecasts and predictions made at the beginning of the financial year to see how they turned out. The Sunday Mail ran a piece over the weekend – Redemption time – Stock experts shrug off a painful year of investing.

The article looked at the 5 stock picks by four experts at the beginning of the 2007-08 year:

Tony Dennis		Tim Lincoln		Joel Palmer		Joseph Kingsley
Director, equities ABN Amro Morgans		MD, Lincoln Intelligent Sharemarket Solutions		Principal Palmer Portfolios		Client adviser Wilson HTM
Code	Change	Code	Change	Code	Change	Code	Change
BHP	+24.8%	BHP	+24.8%	MND	-8.2%	MQG	-42.6%
TOL	-58.2%	MND	-8.2%	WTP	-66.6%	BHP	+24.8%
ORG	+64.3%	CSL	-59.1%	SUL	-44.7%	SDM	-17.3%
DOW	-6.3%	TOX	-35.7%	MLI	-60.9%	NWS	-39.2%
MQG	-42.6%	MRM	-18.4%	MCR	-28.4%	PXS	-54.1%
Average	-3.6%	-19.32%		-41.76%		-25.68%
Out-performance	12.94%	-2.78%		-25.22%		-9.14%

To put these results in context, the ASX200 Index returned -16.54% over the year (not including dividends). The average performance across the 4 experts was -22.59% or 6.05% below the ASX200. Well done to Tony Dennis for beating the market but based on pure chance you would expect two of the four to have out-performed and two to have underperformed so basically the group as a whole did worse than pure chance.

An index fund would have to have had fees and costs of 6.05%to have matched the performance. (Vanguard’s Australian Share Index Fund has a fee of 0.75% on the first $50,000 or 0.34% for wholesale investors)

I know where I would have preferred to have my hard earned money invested.

For more examples of the failure of forecasts take a look at the following website – Failed Forecasts