Guru Grades

Abby Joseph Cohen, the Sunny Side (Last Updated 1/5/09)

A reader suggested that we review the stock market commentary of Abby Joseph Cohen, partner and chief U.S. investment strategist at Goldman Sachs. The public record for Ms. Cohen, available most robustly via MarketWatch and Bloomberg.com, focuses on her 12-month forward forecasts for the levels of major stock market indexes, such as the S&P 500 index. All citations we found for 1999-2008, concentrated in the period 1999-2002, are bullish. Given the quantitative nature of her forecasts, we evaluate her annual S&P 500 index forecasts made near the end of each prior year versus two benchmarks: (1) the expert averages from the annual Business Week stock market forecast surveys; and, (2) simple mechanical extrapolations of the actual historical performance of the S&P 500 index. Using data for 1999-2008 (ten years), we find that:

The following chart shows the absolute errors for Abby Joseph Cohen's annual S&P 500 index forecasts (yellow columns) along with: (1) the average absolute errors for the experts from the same-year Business Week forecasts (blue columns); and, (2) the absolute errors for annual mechanical extrapolations of historical S&P 500 index performance (red columns). We perform the extrapolations for the latter benchmark using the average annual change in the S&P 500 index from 1951 through the year preceding the forecast year. The chart shows that:

• For 1999-2000, Abby Joseph Cohen's forecasts are not particularly accurate, but they were more accurate than the expert averages. In 1999, her forecast is too low; in 2000, too high.
• For 2001-2002, Ms. Cohen's forecasts are especially inaccurate (dramatically overoptimistic).
• For 2003-2007, Ms. Cohen's forecasts are fairly accurate, mostly beating the expert averages. For 2003-2005 and 2007, her forecasts are a little too high. For 2006, her forecast is slightly too low.
• For 2008, Ms. Cohen's forecast is dramatically too high.

There is slight evidence that Ms. Cohen is a better forecaster than the average expert but a worse forecaster than a simple algorithm. Across all ten forecasts, Abby Joseph Cohen's mean annual absolute forecast error is 15.9%, compared to 17.1% for the expert average and 14.2% for the simple mechanical extrapolation. Because the sample size is so small, we cannot be confident that the relative order of these mean errors will persist. There is also some indication (eight out of ten years) that, assuming no systematic improvement, Ms. Cohen's future forecasts will be too high rather than too low.

In summary, very limited evidence suggests that Abby Joseph Cohen is a little better as a stock market forecaster than her average peer, but a little worse than a simple algorithm.

According to Bloomberg.com, as of March 2008, Abby Joseph Cohen no longer makes S&P 500 Index forecasts for Goldman Sachs.

See Guru Grades for a snapshot of the accuracies of various experts in forecasting the U.S. stock market, including links to evaluations of individual gurus. We do not include Abby Joseph Cohen in the snapshot because of the different nature of this evaluation.

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