Wednesday, February 28, 2007

Predicting the obvious

Today there's a new article on Yahoo Finance titled "Why stocks are likely to move lower over next 6 months." After many paragraphs discussing how long it's been since the last 2% market drop, or about the number of junk bonds issued, the real conclusion finally appears in the last sentence of the article:

"... sometime in the next six months most Nasdaq stocks will be lower than they are today by at least 5%."

Huh? Is that a prediction worthy of the front page of Yahoo Finance? Have a look at the Nasdaq index over the past 3 years:

As you can see, the bumpy Nasdaq is no stranger to 10% or even 15% drops from time-to-time, so a 5% drop is pretty mild. In fact, if you made the "5% drop in 6 months" forecast at some random date, you'd have about a 50% chance of being right - without having to do any homework at all.

I have my own forecast for Yahoo's front page: "At some point in the next 6 months, the Nasdaq will be 5% higher than it is now." Both of these predictions will probably come true, so is either one useful?

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