Showing posts with label Predictions. Show all posts
Showing posts with label Predictions. Show all posts

Tuesday, October 6, 2009

Predictions

I'm always amused when financial gurus attempt to predict the future by looking at the past.

I recall looking at the monthly returns of the S&P500, over a 10 year period (from the 1950s to the 1990s).

From these 600 monthly returns I select 120 of 'em.
(That makes 10 years, right?)
Then I plot the evolution of a portfolio using this random selection of 120 returns.
Then I pick another random set of 120 returns,
Then I get this (where the white curve is the result of a random selection):


Now comes the big question
What will the next ten years look like?



In spite of this distain for predictions, I enjoy doing it meself.
For example, I look at the gain made by some stock over the past month.
Then I look at the historical monthly gains for that stock.
Then I identify the historical "best fit".
Then I see what happens in the next month (historically speaking).
Then I use that to predict what'll happen in the next month, starting today.

My brother-in-law owns CBQ.
It invests in Brazil, Russia, India and China.
It closed yesterday at $27.75.
With optimal confidence, I predicted it'd hit $31 in the next 2 weeks:


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I forgot to mention this one, where you're given some historical (weekly) data and asked to guess, like this:

Then you get the actual (historical) continuation, like this:


That ain't easy !!