Hites Ahir and Prakash Loungani have been tracking the quality of forecasts for years at the IMF. As they have stated, "The record of failure to predict recessions is virtually unblemished." Both private and official forecasts get it wrong.
A review of some of their updated charts across a sample of 77 countries in the post financial crisis period shows there has been no improvement in the quality of forecasts around the world. Forecaster are poor at predicting recessions. The one thing that forecasters have to get right for investors, they fail. The consensus cannot even agree in December of the year of the recession that a recession occurred. The authors suggest there is some hope because they predicted more recession, but they usually cannot get it right even in the year in which the recession occurs.
I would like to be a good forecaster but I am also aware of my limitations. First, I have to get the forecast right and then I have to map the forecasts into return space. Both are not easy, so a good second best alternative is to follow the trends and price behavior. This can be further enhanced with some fundamental information about what is the state of the world at any time but a price focus will minimize many forecast errors and allow for quick adjustments.
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