Are Financial Predictions Too Risky For Investment Commentary Writers?VW Staff
Are Financial Predictions Too Risky For Investment Commentary Writers? by The Finance Professionals’ Post
Is it a bad idea to make predictions in your investment commentary because clients will slam you when you’re wrong? Whenever you make predictions, you run the risk of being wrong. But being wrong isn’t a problem, in my mind, if your prediction reflects good thinking.
Lesson from my winning prediction
Accurate predictions alone don’t make you seem smart. I remember the time I participated in a betting pool with members of an investment policy committee. I had to predict where a certain number—probably the 10-year Treasury rate—would be one quarter later.
Guess what! I won. However, it wasn’t knowledge of Federal Reserve policy or the economy that inspired my winning bet. It was that I deliberately picked a rate 25 basis points lower than any other committee member’s bet.
Did I respect the losers less after I won my bet? No. They had well thought-out ideas about the factors driving bond yields. As a result, I continued to think highly of them.
The lesson is that smart people can and will be wrong. After all, look at any major investment firm’s quarterly predictions of statistics such as the fed funds rate, gross domestic product (GDP) growth, or the consumer price index. Most of the time they are wrong. Heck, the federal government revises its GDP numbers as new data comes in.
Why you should make predictions
Investment commentary that only reports facts is often boring. Plus, unless you’re pumping out commentary instantaneously, you’re not telling your readers anything they couldn’t learn online or in The Wall Street Journal. They have no reason to read your factual, unopinionated commentary.
Keeping your clients interested isn’t the only reason to make predictions—or, at a minimum, express opinions. When you support your predictions with carefully reasoned arguments, you give clients insights into your firm’s thought processes. That’s valuable.
Imagine, for example, that you predict that the Federal Open Market Committee will boost its fed funds target later in the year. By itself, that’s not so interesting. What makes it valuable is why you think that’s true and what you recommend based on that prediction.
Unexpected events—war, natural disasters and the like—can sabotage your predictions. However, they may only delay your predictions coming true. Clients will find comfort in the soundness of your thinking.
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