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© Copyright 2000 Rogers Media. The following article first appeared in the May 2000 edition of
BENEFITS CANADA magazine.
Outlook for forecasters
Does anyone really know how the market will go?
By Barbara Clapham
Who is Abby Joseph Cohen and why do we listen to her?
Cohen is, of course, a market strategist with Goldman Sachs & Co. in New York. In late March she
recommended that investors lower their stock holdings; more specifically that they lower the equity portion
of their portfolio from 70% to 65%. Cohen also announced that she thought technology stocks were no longer
undervalued. Investors listened and the Nasdaq dropped about 10% in one day. Here in Canada the TSE 300
fell by a similar amount.
What Cohen said was not something others didn't also say. As well as no longer recommending an overweight
position in tech stocks, she recommended buying undervalued sectors such as banking.
This was the same advice many, many advisors have been advancing for some time. Any value investor can tell
you that the banks have appeared undervalued for a long time and the tech stocks were due for a correction.
Whether they will continue their climb after taking a breather, no one really knows.
When Cohen talks, people listen. She is the latest in a long line of market oracles; market forecasters who
correctly call the market for a period of time, earning guru-like status in the investment world. In 1996,
Cohen predicted the Dow Jones industrial average (DJIA) would rise to 7050 by the end of 1997. It hit 7908.
She has correctly predicted much of the stock market boom of the 1990s.
WRONG CALL
Trouble is, forecasters inevitably misstep and make a wrong call. Remember Joe Granville? For those of you
who don't recall him, Granville was the best known market forecaster of the 1980s, making several dead-on
predictions. What Joe said would happen, happened. Then he slipped, failing to call the biggest bull market
of all time. In August, 1982, the markets broke out of a slump.
In Granville's opinion the rapidly rising prices were evidence of a bubble that was about to burst. The
bull market continued for 14 years while Granville remained bearish. He turned bullish just before Black
Monday in 1987, the day the DJIA dropped 23%.
Where's Granville now? Surprisingly enough, he is still active in the industry, forecasting markets. If you
had taken his advice over the last 10 years you would have lost over 90% of your money.
The point is, these people are human. They make mistakes. What accounts for our need to believe they are
somehow superior to us, that they have the ability to see what we do not? Why do we listen to them?
Joseph Campbell, author of The Power of Myth, may have an answer. Speaking about our fast changing
times, he says, "...technology is not going to save us. Our computers, our tools, our machines are not
enough. We have to rely on our intuition, our true being."
Technology provides us with a wealth of information about companies and the markets themselves. But
investing is more than just numbers. Factors such as investor psychology come into play as well.
Seeking to add value to the figures and data the technology of the business world provides, perhaps we look
to others we believe have the gift of intuition to tell us which way the market will go.
Lawrence Booth, a professor at the University of Toronto, recently forecast what he thinks will happen to
Cohen. "One day she's going to be spectacularly wrong. I think that's a safe prediction."
Yes, it is. But there will be someone else who calls it right, several times in a row. And then we will
turn to them.
Barbara Clapham is contributing editor of BENEFITS CANADA.
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