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Stock Market Forecast Advice

Stock Market Forecast Advice

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Understand Why Forecasts Go Astray

If you look back at some of the forecasts made at the beginning of a new year and how they turned out today, you will find that some turned out not to be true. Forecasting is a “best guess” to put in bluntly. There are a few factors that work against a predictable outcome such as:

· Calls in the extremes
· Inconsistencies
· Reactions to current fluctuations

Many forecasters are conservative in their predictions while some make extreme calls in the low or high-end of the performance spectrum. This situation, in a way, is like an all-or-nothing proposition. An extreme forecaster gets a lot of recognition when right but not as much when wrong so to these people it is worth the risk.

Inconsistencies stem from the use of the same type of information in different ways over a given time period. Simply put, different people use information in different ways over time. This of course is the human factor.

Other forecasts go astray because forecasters react to current fluctuations in the market. It is a standard reaction but too many reactions could affect the ability to forecast correctly.

Forecasts Tend To Be Accurate In the Short-Term

A study was done on the database maintained by the Survey of Professional Forecasters run by the Federal Reserve Bank of Philadelphia. This database is extensive with forecast information submitted by many experts. A diverse set of variables dealing with financial and economic indicators have also been tracked and used by these experts. The finding was that the forecasts have predominantly greater accuracy when the predictions were made in the short-term (1-2 calendar quarters). This brings attention to the position stated previously about the inaccuracy of long-range forecasts.

The Advice

Attempting to predict how a company will perform through stock market forecasting requires a solid understanding of market characteristics. The more predictable figure is a companies dividend payment. This is because dividend payments and increases are easily traceable, and can be monitored frequently. If an investor wants to maximize the potential for achieving the highest return, he must be prepared to hold out for the long-term. The best advice requires paying close attention to historical trends in the particular company/industry being analyzed while at the same time not ignoring any potential for error (margin of error). Holding out for the long-term also requires discipline by investors in not reacting to short-term market moves. Finally, a more conservative approach in stock market forecasting is to look at averages. Looking at standards means considering the potential high and low extreme’s of a stock’s performance and determining the middle ground. Taking all these variables together, the stock market analyst can be somewhat reliable in his predictions.

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