Most Stock Market Predictions are Useless — Unless You’re a Superforecaster
There is a formula for making smarter predictions
A few days before the tech bubble burst in March 2000 after the Nasdaq index reached an all-time high of 5,048, Jeremy Siegel — author of the best-selling book, Stocks for the Long-Run — wrote an op-ed for the Wall Street Journal. The provocative headline was “Big-Cap Tech Stocks Are a Sucker Bet.” He claimed that high valuations of tech stocks weren’t justified based on historical price-to-earnings ratios. He concluded, “Despite our buoyant view of the future, this is no time for investors to discard the lessons from the past.”
A few days before, Siegel had appeared on CNN’s Moneyline, as Stuart Varney’s guest. Asked to conclude whether the tech market was in a bubble, Siegel replied “I think we are going to see some very big declines in the sector this year.” A year later, Yahoo!’s stock price would be down by 92 percent. Two and a half years later, the tech-heavy Nasdaq index would see a decline of over 75 percent, and it wouldn’t be until 2015 before the Nasdaq index would again reach 5,000. Varney would later claim that Siegel was the person who called the market top.
Sounds like a great story on stock market predictions, doesn’t it? The Wizard of Wharton was able to predict the…
