Warren Buffett, one of the World’s greatest investors, has repeatedly made his contempt for market forecasters clear.
“We have long felt that the only value of stock forecasters is to make fortune-tellers look good” Warren Buffett said, in a contemptuous tone.
“A prediction about the direction of the stock market tells you nothing about where stocks are headed, but a whole lot about the person doing the predicting” Warren added in a scathing manner.
However, the astonishing aspect is that even Warren Buffett’s sage advice does not deter so-called experts from making outrageous predictions about the state of the market. The fact that the market invariably proves them wrong and they end up looking like Buffoons does not stop them. Instead, they revel in it.
A few days ago, we saw the sorry state that Saurabh Mukherjea, the whiz-kid from Ambit Capital, found himself in. Novice investors roughed him up for making the bogus prediction that the Sensex would crash to 22,000 and then doing a somersault when he realized he was wrong.
Now, it is the turn of the eminent economists from the venerable Royal Bank of Scotland to face ridicule from embittered investors.
In January 2016, the RBS’ economists terrified everyone by warning that “investors face a cataclysmic year where stock markets could fall by up to 20% and oil could slump to $16 a barrel”. They advised investors to “sell everything except high quality bonds. This is about return of capital, not return on capital. In a crowded hall, exit doors are small”. The learned economists also warned that the current situation was reminiscent of 2008, when the collapse of the Lehman Brothers investment bank led to the global financial crisis. This time China could be the crisis point, they said.
Today, six months later, we can see that the prediction was totally bogus.
Charlie Bilello, an astute fund manager, exposed the mockery of the prediction by emphasizing that all asset classes, which included stocks in the developed countries as well as the emerging markets, gold and even treasuries, have posted handsome gains.
"Sell Everything" – RBS (Jan 11)
Returns since…
Oil: +47%
EM: +18%
S&P 500: +11%
US High Yield: +10%$RBS: -43% pic.twitter.com/LlykcTRACZ— Charlie Bilello, CMT (@MktOutperform) July 1, 2016
In an ironical twist of fate, the stock price of RBS has slumped a whopping 43%. So, while the learned economists were busy predicting the state of the global economy, they had no clue that their own company’s stock price would slump like a ton of bricks.
Charlie Bilello also hauled up RBS for the tone of their statement which was obviously designed to be sensational and attention-grabbing:
Why make such an outlandish statement? Attention. All of the major financial news outlets ran with the story… pic.twitter.com/YURcuO6YA5
— Charlie Bilello, CMT (@MktOutperform) July 1, 2016
Investors had a field day mocking RBS’ bogus prediction:
@MktOutperform @nooreshtech what they meant was sell everything with RBS in the name ..lolz
— Girish Vaidya (@gvvaidya) July 2, 2016
@mktoutperform They were talking about RBS share.
— Jibran Shahzad (@StocksPK) July 1, 2016
@MktOutperform It's always much easier to predict the past. If u want to do future,be obscure ( see Nostradamus ) so u have an exit strategy
— Patrick Nomico (@mobydivingdick) July 1, 2016
@MktOutperform So glad I wasn't listening that day / week / month / ever
— Jonathan Davis (@J0nathanDavis) July 1, 2016
However, when I last checked, the eminent economists at RBS were not deterred by the fact that their last prediction had flopped. Instead, they were busy making new ones:
RBS CEO tells staff Brexit will cause period of economic uncertainty https://t.co/iIdr1cjBoQ
— Reuters Business (@ReutersBiz) June 28, 2016
Old habits die hard!
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