Thursday, 20 November 2014

No point focusing too much on forecasts

Totally agree with the article below that forecasts are made to please clients.

http://www.reuters.com/article/2014/11/19/risks-forecasting-kemp-idUSL6N0T92DJ20141119

It is very important that the analysts understand the business, revenue generators, cost components, variables and industry trends well. But when it comes to earnings models, I see little benefits of having too sophisticated models, with too many variables.

Not to mention forecast for next year, can analysts correctly forecasts most of the variables such as prices of raw materials, prices of commodities, forex, economy, interest rates etc just several months ahead. How many analysts correctly forecast the slump in crude oil price say 6 months ago?

It is better to be roughly right then precisely wrong...

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