One of the few growth industries in these hard times is the investment punditry business, which seems to be expanding endlessly. Not a day passes without some fuss being made over an investment guru pontificating on where the markets are heading.
The most remarkable aspect of this is the deference with which their predictions are treated, although it has been systematically shown that - at best - most forecasters manage to get things right no more than 50 per cent of the time, while many of them get it spectacularly wrong. Yet no one seems to notice.
In one of his more acerbic remarks, economist John Kenneth Galbraith said: 'The only function of economic forecasting is to make astrology look respectable.' Yet the investing public clearly yearns for both economic and market forecasts, believing that if wise men and women can predict the future, this knowledge can be used to make small fortunes. The truth is that in investment, as in practically everything else in life, outcomes are hard to predict.
Just how hard is reflected in a study conducted by economist Tim Harford, who looked at forecasts for Britain, the United States and the euro zone from 2002 to 2008. He concluded that not only did forecasters have a tendency of clustering around similar predictions (a finding echoed in many other studies), but that in this period they were also more wrong than right.
In a 1998 book by William Sherden called The Fortune Sellers, 48 turning points in the US economy were examined. Sherden found that in all but two cases most forecasters had failed to predict these events. His general conclusion was that economic forecasting was no better than guessing and that when it came to official bodies such as the Federal Reserve, the Council of Economic Advisers and the Congressional Budget Office, their forecasts were worse than chance.
So, if it's hard to get the macroeconomic picture right, what happens when it comes to market forecasts? Unsurprisingly, the record is no better. A study published by the US-based CXO Advisory Group this year looked at the record of stock market forecasters over a two-year period. The survey embraced 5,700 measurements and more than 60 so-called gurus. It showed that they achieved an average 47 per cent overall accuracy record.