The word pundit, meaning an expert in a particular subject or field, comes from the Sanskrit term for “learned man.”
When it comes to the stock market, however, there is some debate as to just how learned these purported prognosticators actually are.
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This is that magical time of year when those in the know come bloviating their way into our hearts and telling us how things are going to be.
It may seem to some folks that cable TV runs on pundit power as a veritable mighty wind of verbiage lays out the future in all its glory.
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These experts do get a lot of attention, but certain parties remain skeptical.
Berkshire Hathaway’s (BRK.A) Warren Buffet, for example, has made no secret of his disdain for market soothsayers, declaring in his 1992 letter to Berkshire Hathaway shareholders, “We’ve long felt that the only value of stock forecasters is to make fortune tellers look good.”
Pundits had a lot to say about the S&P 500 this year.
Bad year for pundits
The Oracle of Omaha said he believed that short-term market forecasts “are poison and should be kept locked up in a safe place, away from children and also from grown-ups who behave in the market like children.”
Let’s move along a little bit to late December 2023, when the Economist said that shareholders had experienced “a remarkably good year,” while forecasters had a terrible one.
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And Bloomberg stated last year that “stocks rallied when they were forecast to tumble, expected bond gains fizzled, and the recession never came…up and down Wall Street, forecasters were caught flat-footed by how the first half of 2023 unfolded in financial markets.”
So, how did the cognoscenti do in 2024?
Last month, Avantis Investors issued its market forecasters’ report card, where the company aggregated year-end 2024 price targets for the S&P 500 from 20 firms, all issued in late 2023.
The study found that none of the 20 estimated year-end price targets were even close to where the S&P 500 currently stands.
“Given that none of the 20 firms in the 2024 sample were in the ballpark of the actual results we’ve observed, it’s no surprise that the median estimate is also well off the mark,” the report said.
Over the seven years in the study, the implied return from the consensus estimates was never within 10% of the actual S&P 500 return, Avantis said, ranging instead from an underestimate of 26% to an overestimate of 21%.
TheStreet Pro’s James “Rev Shark” DePorre wasn’t particularly impressed with the financial forecasts either.
“In 2024, the predicting pundits did a particularly poor job,” he said in his Dec. 14th column.
DePorre, CEO of Hammerhead Strategies, LLC, noted that the average target price for the S&P 500 was 4,861, which is currently about 20% too low.
Even the most optimistic target of 5,400 isn’t even close to the current level, which was 6,083 at last check.
“We can go on at great length about how inaccurate these predictions tend to be, but it is a game that Wall Street and the media like to play, and there is always a lucky pundit who comes fairly close and can build a whole career on that one lucky guess,” DePorre said.
“There has never been a pundit who has consistently predicted the twists and turns in the market with a high level of precision,” he added.
Analyst says economic predictions are useless
Even if it were possible to consistently make these market predictions, DePorre said, they are generally useless because the timing of the twists and turns during the year determines investors’ returns to a far greater degree than the ending point.
The veteran analyst also said that predictions about the economy are equally useless, noting that recent economic predictions about inflation and growth have been wildly wrong.
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“And, of course, there is a flood of news predictions about what will happen when the Trump Administration takes office.” he said. “Even if you do have some clues about the economy, there is a very loose correlation with the stock market.”
Nevertheless, DePorre said there are a few things that can be predicted about the year ahead with confidence.
“The one great certainty of the market is cycles,” he said. “The long-term cycles and short-term cycles are the key to creating market wealth, which is to stay with the strong cycles and reduce risk in the weak cycles.”
He said that conventional Wall Street and the business media love to make predictions, “but the much more effective approach is aggressive reaction when conditions change.”
“Rather than guess when conditions will change, react as it becomes apparent that a cyclic is shifting,” DePorre explained.
You can also count on something happening that nobody was expecting. The experts were wrong about inflation being transitory, he said, and they missed the mark on higher interest rates triggering an economic slowdown.
“My prediction for 2025 is that it will be a great year for stock pickers and active traders who are quick to react to changing conditions,” he said.
DePorre encouraged investors to focus on finding strong sectors and predicting market themes.
There are always some key themes, like AI or Bitcoin, that produce the biggest returns, he said, regardless of what the broad market does,
“Recently, we have seen things like quantum computing and space exploration attract great interest,” he said. “I don’t know what themes will dominate in 2025, but if we monitor the hottest stocks, it will become quite evident what they are.”
And always remember that there will be some fantastic stocks and some big losers.
DePorre said the big money isn’t made by trying to time the market — it’s made by picking the best stocks and trading them effectively.
“Pundits and the media would rather talk about timing the market because they aren’t very good at finding great stocks at an early point,” he said. “You aren’t going to discover the next big winner by listening to CNBC, but you might find it by reading some of the columns on TheStreetPro.”
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