The Forecasting Fallacy

Published On: November 17, 2025

Written by: Ben Atwater and Matt Malick

Clients often ask us, “Where is the market is heading?”

After all, economists publish growth projections to one decimal place; strategists release year-end S&P 500 targets; and market commentators fill television screens with confident assertions about what is coming.

But in truth, all of it is theater, merely a comforting illusion that the future can be known, quantified, and precise.

For investors with long-term goals, understanding the fallacy of forecasting is vital. It helps protect wealth, curbs emotional decision-making, and fosters financial resilience.

Most of us crave certainty. In finance, this bias manifests in our attraction to forecasts. An attractively packaged projection offers psychological comfort. It turns a chaotic, random, probabilistic (at its best) world into a narrative that feels orderly.

The problem is that markets do not cooperate with narratives. Economies evolve through millions of daily decisions, political surprises, technological shifts and, most of all, behavioral reactions that no model can capture. Investors build models based on assumptions, and assumptions fail the moment reality changes.

Even the most sophisticated institutions — from central banks to hedge funds — consistently miss their predictive marks.

The Federal Reserve’s own forecasts of inflation, unemployment, and interest rates routinely deviate from reality. While markets have repeatedly humbled many white-shoe Wall Street banks that confidently projected the price of oil, the S&P 500’s performance, the ten-year Treasury yield, etc. Forecasting gives the illusion of control, but only the illusion.

Forecasts often appear accurate in stable periods when markets move gradually. Yet the moments that truly define long-term wealth — the crises, crashes, and recoveries — are precisely when predictions fail most spectacularly. Take a few cases that we have experienced as evidence:

Few, if any, major forecasting model foresaw the collapse of the U.S. housing market and the subsequent contagion that nearly toppled the global banking system during the Great Financial Crisis of 2008. Trust us, we worked at a Wall Street bank just before the crisis and nobody had any idea of what was coming.

At the outset of 2020, no forecast included a global shutdown, negative oil future prices, and the fastest bear market in history followed by the quickest rebound in history.

The dot com bubble that inflated during the 1990s and finally faltered in 2000 came as a surprise to most. Analysts predicted endless technological growth; valuations soared; and then trillions vanished when reality returned. The internet was revolutionary, but the over-investment was temporarily upending.

Decades of research confirm what seasoned investors know intuitively: most forecasts are no better than chance.

University of Pennsylvania Professor Philip Tetlock’s landmark 20-year study of 28,000 expert predictions found that their accuracy barely outperformed random guessing. In many cases, dart-throwing chimpanzees did as well. Tetlock concluded that experts tend to overstate their confidence while underestimating complexity.

Similarly, studies of market strategists’ year-end S&P 500 targets show a persistent bias toward optimism, with average prediction errors of 10–15%. Even when strategists are directionally correct, the magnitude of market moves usually surprises them.

Forecasts persist not because they work, but because they sell. They give clients something to discuss, media outlets something to publish, and advisors something to circulate. But investment success requires ignoring, or even defying, the noise.

When clients shift portfolios based on forecasts — selling equities before a “predicted” downturn or chasing the next “guaranteed” bull market — they often lock in losses or miss rebounds, no matter how well-reasoned their market timing appears.

Financial research firm DALBAR’s long-term data shows that the average equity investor underperforms the market by four percentage points annually, due to mistimed entries and exits.

Forecasts create the illusion that outcomes are controllable. Investors who feel certain about the future take bigger risks, often concentrating portfolios or leveraging trades in ways that backfire when the narrative changes.

Focusing on the short-term, like next-quarter’s GDP, or next-year’s rate cuts, distracts from what truly drives wealth accumulation — time in the market, discipline, and compounding.

The late Jack Bogle, founder of Vanguard, famously said of market timing, “After nearly fifty years in this business, I do not know of anybody who has done it successfully and consistently. I do not even know anybody who knows anybody who has.”

Rejecting or ignoring forecasting does not mean embracing defeat. Instead, it means reframing success around process, not prediction. Since no one can know which asset class or region will lead in any given year, a balanced mix of equities, bonds, cash, etc. provides a natural hedge against error.

Scenarios, rather than forecasts, allow for a range of outcomes. A prudent financial plan should survive both prosperity and recession. Systematically trimming outperforming asset classes and adding to underperforming asset classes forces investors to “buy low and sell high” without forecasting at all.

The greatest threat to compounding is behavior and emotion. Recognizing the temptation to act on forecasts and then not acting helps investors stay grounded. Forecasts tend to compress focus on days, weeks or months, whereas successful investing is all about decades.

Over a 30-year horizon, temporary corrections fade into the noise of compounding returns. Most of the time, we cannot even remember why a correction occurred, if we can even remember it occurred at all. The essence of investing is not predicting the storm but ensuring the ship is seaworthy.

Ironically, forecasts can still be useful as tools to evaluate assumptions. When an economist projects a slowdown or strategist calls for a rebound, thoughtful investors can use those views to stress-test their own plans, by asking questions such as:

“If this forecast is right or wrong, would my portfolio still achieve its goals?”

“If inflation surprises higher, how resilient is my spending plan?”

The goal is not to anchor on predictions but to explore the range of what could happen. Good planning is probabilistic, not prophetic. The antidote to forecasting’s fallacy is intellectual humility, a recognition that uncertainty is permanent and that success lies in adaptation, not clairvoyance.

The most successful investors — from Berkshire Hathaway’s Warrant Buffett to Vanguard founder Jack Bogle to Oaktree Capital founder Howard Marks — share this trait. They focus less on predicting the next move and more on positioning for the long term, with patience and discipline. They understand that volatility is the price of admission for long-term compounding.

As Howard Marks wrote, “You can’t predict. You can prepare.” That distinction lies at the heart of prudent wealth management.

Forecasting will never disappear because it caters to our deepest human desire for certainty. But investors build wealth not by knowing the future. Conversely, investors build wealth by respecting uncertainty, designing around it, and staying consistent through it.

Our job is not to outguess markets or issue bold predictions. It is to help clients construct portfolios and financial plans that endure across many environments.

True financial wisdom does not come from forecasting tomorrow’s weather; it comes from building a structure that thrives no matter what the climate brings.