Converging Guru Accuracies
March 13, 2009 • Posted in Investing Expertise
Do stock market gurus tend to anchor on bullish or bearish outlooks, regardless of market trends? If so, the distribution of their stock market forecasting accuracies should diverge when the market persists in one mode over a long period and converge when the market changes modes. The results at Guru Grades offer a limited way to test these hypotheses. Forecasts from the 2003-2007 bullish period still dominate the samples. If the gurus are mostly anchored on their outlooks, the 2008-2009 bearish period should be compressing the previously spreading distribution of accuracies by raising the grades of stuck bears and lowering the grades of stuck bulls. Based on trends in the Guru Grades accuracy rates over the past five bearish months, we find that:
The following chart compares the distributions of stock market forecasting accuracies for the 38-39 gurus still actively forecasting five months ago and now, as measured at Guru Grades. Overall, the distribution has continued to compress, as some stuck bulls and some stuck bears trend toward the middle. Note that:
- Measuring the accuracy of squishy market forecasts is messy.
- The number of forecasts graded for some gurus (for example, for the lowest in the distribution) is very small, so confidence in the associated accuracy rates is very low.
- Details show that not all gurus anchor on bullish or bearish outlooks. Some switch outlooks.
- The equally weighted average forecast accuracy of all active gurus is roughly constant at 47%.
In summary, limited evidence continues to suggest that, in aggregate, stock market gurus tend to anchor on bullish or bearish positions, regardless of actual market trends.
Results also indicate that the aggregate outlook of stock market experts does not forecast stock market behavior.