Do you know who Irving Fisher was?

The Library of Economics and Liberty described him as:

“…one of America’s greatest mathematical economists and one of the clearest economics writers of all time. He had the intellect to use mathematics in virtually all his theories and the good sense to introduce it only after he had clearly explained the central principles in words. And he explained very well. Fisher’s Theory of Interest is written so clearly that graduate economics students can read – and understand – half the book in one sitting, something unheard of in technical economics.”

Unfortunately, he is also known for saying, “Stocks have reached what looks like a permanently high plateau,” on October 15, 1929. Just a few weeks later, the market crashed along with Fisher’s credibility.

This is but one tale of our dismal ability to forecast. Regardless, we continue to try. Consider 2014. The Wall Street Journal’s survey of economists predicted 10-year Treasury rates would move higher (a unanimous opinion). There was good reason for analysts to forecast higher rates, but markets are complex and rates fell during the year. Survey participants predicted 10-year Treasury rates would finish at 3.52 percent. They finished at 2.17 percent.

Survey participants also anticipated crude oil would finish the year at about $95 a barrel. There was little reason for anyone to suspect a significant drop in oil prices when demand for energy is relatively strong around the world. Regardless, the final closing price per barrel was about $53.

So, when people whose jobs involve tracking economic events and financial markets find it difficult to interpret how markets may perform, what are investors supposed to do? It is felt they should remain committed to investing best practices, which include prioritizing financial goals, maintaining well-allocated portfolios, managing risk, and talking with financial advisors.

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