Over recent weeks, the recovery of equity markets has left many scratching their heads. In particular, some distressed companies, such as Hertz (NYSE: HTZ) and Chesapeake Energy Corp. (NYSE: CHK), have experienced monumental gains after releases of negative news. A recent piece out of the Wall Street Journal explores how the overconfidence of investors contributes…
Tag: forecasting
Your Guess Is as Good as Mine
From February 19th to March 23rd, the S&P 500 plummeted -34 percent. From March 23rd until time of composition, the same index climbed approximately 50 percent. Do not confuse this as a net gain. (Refer to our blog series on risk and volatility for how path dependency is important for the geometric compounding of investment…
Know Thyself
The current whipsaw action of markets has resulted in a wide spectrum of forecasts ranging from a V-shaped recovery to the erosion of economies resulting in a prolonged recession. With forecasts abound, famed investor, Howard Marks, tackled this topic in his most recent memo. Mr. Marks notes one shock event is enough to throw forecasts…
Preparation vs. Prediction
After a precipitous decline from February 19th to March 23rd, equity markets have rebounded significantly. Simultaneously, oil prices and volatility have experienced extreme fluctuations, central banks are implementing waves of stimulus, and governments are considering the relaxation of social distancing restrictions. This leaves many investors, including the famed and veteran varieties, unsure on a path…
Superforecasting: The Art and Science of Prediction
Making predictions and forecasting the future are integral parts of everyday life, yet it’s unlikely individuals realize the amount of predictions one makes in a day. The use of heuristics or “rules of thumb” are ingrained in human psychology and help people quickly determine courses of action with limited information at their disposal. Deciding what…
The Benefits of Preparing for the Unknown
While many investors may define success for their investment portfolio from a return-centric perspective, arguably the more important factor to focus on is risk mitigation. Once you’ve defined a way to quantify the utility function inherent in a risk-centric framework, then return expectations can follow. Otherwise, the strategy is at risk of being abandoned when…
Cutting Through the Noise of Financial Media
Given the recent bout of volatility in equity prices, there has been an abundance of financial pundits forecasting the next global recession is surely upon us. Trade war tensions heating up, global economic activity slowing, and yield curves around the globe inverting are the fodder for click-bait style headlines forecasting a sharp decline in equity…
The Science Behind Good Forecasting
The art of forecasting is notoriously fickle. It is often underappreciated how much luck or chance is responsible for a specific outcome occurring. To make matters worse, those responsible for making predictions tend to focus on the result, as opposed to the process used to arrive at the decision, when evaluating their skills. It is…