Article Presentation

Financial Management

Listen To The Market, Not Its

Pundits
by Michael Schmidt

Instructor: Madam Nadia Khan

Presented by: M. Umair Iftikhar

ID: 2009-26-1-9814
Sec: A
 Listen To The Market, Not Its Pundits

A pundit is someone who is an authority on a subject and who expresses an

opinion, especially in the media. The term "pundit" is tossed around in the
financial media freely, and is applied to an expert in any subject from stocks and
bonds to economics and global strategy.

Pundits come in all shapes and sizes and are also referred to as experts, gurus,
strategists and mavens.

There are three types of pundits:

1. Economic Pundits
2. Market Pundits
3. Stock Pundits
 Listen To The Market, Not Its Pundits

Economic Pundits

Economic pundits come in multiple varieties - some write newsletters, some have
a background in politics, and the garden variety typically work for large
investment companies and double as strategists. Their qualifications vary, but
typically they have at least some academic background in economics, which is
often as extensive as a Ph.D. 

•There are two types of assumptions of Economic pundits

Use a combination of current, past and leading economic indicators to form their
projections

• Short-term forecasts run from as little as a month to as long as three years into
the future. The margin for error in short-term forecasting is high, specially during
economic swings.

• Longer-term forecasting looks three, five or even 10 years into the future. Long-
term forecasts are a little safer to make, as they can be adjusted over time. 
 Listen To The Market, Not Its Pundits

Market Pundits 

•Market pundits typically provide their opinions on what is currently happening

in the market, though some offer future outlooks.

•With the volatile nature of stock and bond markets around the world, market
pundits make predictions more than forecasts.

•They usually provide ranges for the market's future and need to have wide
margins of error if they want to have at least a chance of being in range.
 Listen To The Market, Not Its Pundits

Stock Pundits

•There is a process in which stock pundits present their forecasts and

projections.

•They have the same access to the companies' financials, their outlooks
tend to be based more on the fundamental data used by the majority
of buy-side analysts.
 Listen To The Market, Not Its Pundits

Why Pundits Are Often Wrong

There is no simple reason for the inaccuracy of pundits' forecasts and projections

One explanation is that the economy and the markets are so hard to predict.

There are two types of prediction:

1. If you subscribe to the efficient market hypothesis, you can assume that all
information is already built into prices.

2. If you believe that markets are only somewhat efficient, then there may be
opportunities to benefit from pundits' advice.

The problem with following the theories of any pundit is that you have to buy into
their tools and models.

Econometric and stock-valuation models vary from pundit to pundit, which explains

the variation in outlooks. Then there are those who just might be guessing, who have
an agenda, or who have a product to sell
 Listen To The Market, Not Its Pundits

Who Can You Believe?

When considering economic forecasts, one way to see through the fog is to focus
on long-term consensus outlooks.

•You have a better chance of predicting the future accurately if you plan for it to
fall within a range of outcomes rather than relying on a single economist's opinion.

•The Livingston Survey, the oldest continuous survey of economists'

expectations, is a good source for consensus data.

•When it comes to market pundits, because of the way the industry is structured,
it's difficult to find a pundit who is not biased.

For example, an expert who manages or sells equities or equity funds will typically
have a more positive outlook, while managers of bear market funds, short funds
and even bond funds may tend to be a little more negative on the market. 
 Listen To The Market, Not Its Pundits

Conclusion

Financial pundits have been around for a long time and will most likely continue to
dominate the financial news for the foreseeable future. Some have a successful
history of calling market or economic swings, and others might just be guessing.
Either way, pundits sometimes provide valuable information and, on occasion,
some entertainment. To get the best information available, it's wise to take in
outlooks from surveys or multiple sources and draw your own conclusions based on
the outlooks with the soundest principles.