A reader inquired about the stock market forecasting performance of Joseph Battipaglia, senior member of Washington Crossing Advisors. Near the end of each of years 2004-2008, these investment advisors issued a forecast for the level of the S&P 500 index one year ahead. How well do they do? Comparing their year-end S&P 500 index forecasts for 2004, 2005, 2006, 2007 and 2008 to actual S&P 500 index performance, we find that:
The following table summarizes the Washington Crossing Advisors’ forecasts for the S&P 500 index, the actual closing levels of the index and the forecast errors for each of 2004-2008. The average absolute forecast error over this five-year period is 11.5%.
Do the results demonstrate forecasting expertise?
Based on average absolute errors for the fairly large samples of expert stock market forecasters reviewed in “The Annual Business Week Stock Market Forecasts” (second chart), the accuracies of the Washington Crossing Advisors forecasts for 2004-2008 are a little better than average. Over this period, the average absolute forecasting error for the Business Week forecasters is 13.2%, and that for a simple mechanical extrapolation is 11.7%. The forecast accuracy of Washington Crossing Advisors is therefore about equal to that of mechanical extrapolation.
We cannot find quantitative S&P 500 index forecasts for 2002, 2003 and 2009 in the commentary archive of Washington Crossing Advisors.
In summary, a very small sample suggests that Washington Crossing Advisors forecasts the U.S. stock market a little more accurately than does the average U.S. equity expert, but they failed to predict the dramatic decline of 2008.
For assessments of the forecasting accuracy of other investing experts, see Guru Grades. For other research on expertise, see Blog Synthesis: The Wisdom of Analysts, Experts and Gurus.
