Forecasting is a mug's game

Forecasting markets couldn't be more of a mug's game. Not only is the future completely unpredictable, but as we point out in this week's investment briefing, we make all kinds of mistakes when we try to predict it.

The one most often cited is anchoring where we try to find the answer to a question by looking at irrelevant numbers. This is what often happens with forecasting. Commentators look at what has happened over the last few years and try to figure out whether the market will go up more or less than it has already done, rather than asking what the actual value of the market should be in absolute terms. Add the impossible to the methodically foolish and it is no wonder everyone's always wrong. Indeed, the only surprise is that people keep trying.

Still, they do, and so this week we've looked at the consensus forecasts from the brokers, and we've also had a special Christmas roundtable, where, rather than look for specific numerical forecasts, we've asked our Roundtable members to discuss the themes that they think are important for 2006. Their very valuable thoughts cover everything from US Treasuries (bad value, they say) to the odds of recession in America (not very high); oil (still a reasonably good bet); Japan (looking good, but not as good as this time last year); and soft commodities (the best value of all and the sector that will lead the market in 2006).

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Then we look at how you would have done if you had followed the advice of our personal view page tipsters in 2005. The good news is that you would have done very well indeed. Our tipster of the year, Richard Tonkinson, has seen his tips return over 62.9% so far this year and many of the other money managers we have featured would have made attentive readers returns in the high double digits too.

Finally, we've had a look at the housing market. The bulls seem to think disaster has been averted in 2005, and that the UK housing market has achieved something few housing markets have ever achieved before a soft landing. I'm not entirely convinced. Regular readers will know that my own flat on the market at the turn of last year never did sell and the fall in transactions over the year makes me very nervous indeed. Whatever the bulls may say, this has been a nasty year for house prices and I think 2006 will be worse.