Tuesday, January 21, 2014

Evaluating My 2013 Economic Predictions

To start the year I made some random economic predictions that I have no confidence in myself. Let’s see how well I pin the tail on the donkey.

1. Interest rates will go up a little.

Fail. The Bank of Canada target rate stayed at 1% for yet another year.

Score: -1

2. Housing prices will come down a little.

Fail. According to the Teranet - National Bank Composite House Price Index, house prices in Canada rose an average of 3.81%.

Score: -1

3. Canadian and U.S. stock markets will have an above average year.

Success. Libra Investments have a spreadsheet of historical investment returns. This year’s return of 13% on the TSX composite is above the 10.8% average since 1970. The U.S. S&P 500 was up 29.6% including dividends (measured in U.S. dollars).

Score: +1

4. Bonds will have a below average year.

Success. The Libra Investments spreadsheet says that Canadian bonds dropped 1.2%, clearly a below-average year.

Score: +1

5. The 2013 U.S. government deficit will be less than the 2012 deficit.

Success. The U.S. government 2013 deficit was $680 billion, substantially less than $1.1 trillion for 2012. This was known to be a very likely outcome, though. I’ll only take a tiny bit of credit on this one.

Score: +0.01

6. Berkshire Hathaway will have a strong year.

Success. Berkshire A-class shares went from US$134,060 to US$177,900, an increase of 32.7%, which is higher than the S&P 500’s increase of 32.3%.

Score: +1

Total Score: +1.01 (out of a possible range of -6 to +6)

So, my overall score is a little above middling this year. I made no concentrated bets on these predictions. You shouldn’t have either.

With a little luck, I could just as easily have made a bunch of predictions that all turned out to be right. But these would have been just as worthless as the predictions I did make because you can’t know in advance if I’m going to be right or not. If I do get my predictions all right one year, I’d have to find a way to leverage publicity quickly before my next year’s predictions prove to be half wrong.

The important lesson here is to avoid paying attention to others’ predictions. It’s normal to be swayed by confident people, but it’s important to remember that their predictions are usually just random.


  1. Your result is actually even more flat, because 3 and 4 are the same :)

    1. @AnatoliN: Am I missing a joke or are you asserting that the correlation between stocks and bonds is strongly negative? If the latter, history disagrees.

  2. Not that it affects your results, but the S&P 500 was up 32.29%, not 29.6% - dividends matter :)

  3. Replies
    1. @Robb: You're right. I was using SPY prices with dividend adjustment at Yahoo Finance, but I misread one of the figures.