Five steps to fewer forecasting follies

Those who have followed this blog long enough will know that I have often been critical of those that claim to be able to forecast commodity prices. My concern was initially spiked after it appeared that many investors, companies and governments had been fooled into believing that commodity prices would continue infinitum. That sparked me to write my second book, Crude Forecasts: Predictions, Pundits & Profits in the Commodity Casino which set out to provide the evidence, lay out the incentives and offer some ways that things could be improved for the better.

I’m certainly not the only one who is skeptical of the abilities and claims of Wall St forecasters. In a recent piece for Bloomberg, Barry Ritholtz of Ritholtz Wealth Management offers 5 suggestions as to how the forecasting business could be made a whole lot more transparent and potentially more successful.

№1. Share the underlying model’s past performance: As Ritholtz highlights, “if the forecaster has an audited track record showing how the prognostications stacked up versus reality during the past five years, and can demonstrate how these made clients some money, that might be worth notice.”

But he rightly caveats this by saying that past performance is no guarantee of future results since “a good track record may not be repeatable; that those winning outcomes could…