WTF Headline of the Day: "Dow 18,500? Believe It"

Wednesday, February 13, 2008 | 06:58 AM

I got a huge kick out of this headline last night:

Dow 18,500? Believe It

Morningstar based this number on the "fair value estimates" of the index's components. I have no idea how fair value is derived -- earnings? ROI? cash flow?

Regardless, this is Morningstar's forecast over the next 3 years; that translates to 14.8% annualized price return, excluding dividends. With divvies, returns are 17% per year.

And why I was so amused? Well, first off its precariously close to exactly half of the infamous Dow 36,000 book by Glassman & Hassett we all know and love so much. Could the timing of that book have been any better, published as it was on October 1, 1999?

Second, I find that high degree of certainty in the headline, well, cute. It ignores the basic reality of forecasts, that no one knows what the future will bring. And that is always amusing to me . . .

Dow 18,500? Believe It 
Jeffrey Ptak, CFA, CPA
Morningstar, Tuesday February 12, 7:00 am ET

Apprenticed Investor: The Folly of Forecasting
Barry Ritholtz, 06/07/05 - 01:05 PM EDT

Wednesday, February 13, 2008 | 06:58 AM | Permalink | Comments (67) | TrackBack (0) add to | digg digg this! | technorati add to technorati | email email this post



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I have been reluctant to post personal forecasts as nobody cares to know what other investors do unless they have a clearly established credibility.

Having said that, I can't resist to venture into sharing what my statistical model has been spouting for a week now:

Namely that there is a 75% chance of an imminent collapse (-20%) of the equity market in the coming days (1 to 10 days).

Incidentally, I have a Bach. Science degree in applied maths & stats, I have been working on this model for over a decade, and no I don't smoke ganja. (now maybe I should). This is the first time in 15 year this "crash" signal shows up.

Has anyone gotten the same kind of signal lately?

Posted by: Steelduck | Feb 13, 2008 7:36:39 AM

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