In the early noughties, there was a teen sitcom called That’s So Raven. The show centred around a girl – Raven – who had psychic visions in which she would glimpse snippets of the future. In trying to make these visions come true, she would inevitably get into scrapes and much hilarity ensued.
As this synopsis might suggest, fund managers were not the programme’s target audience. However, the programme contained a useful lesson for all investors – namely, that humans are bad at predicting the future (at least in its entirety) and often blunder around as they wait for their forecasts to materialise.
The world of finance is full of such examples. Banks (and fund managers) have repeatedly misjudged the direction of the S&P 500, for instance. They expected the index to achieve a return of 1 per cent last year while, in reality, it grew by 28 per cent. And it’s not just that analysts are too pessimistic. Ahead of the 2022 tech sell-off, they thought the S&P 500 was on track to deliver 4 per cent returns. It actually fell by a fifth.