The Doomsayers Who Got It Right

There’s an article today in the WSJ profiling three money managers who at least partially called the current bust correctly.  Jeremy Grantham has been on my radar for some time, the other two I had not heard of before.  They are not optimistic about prospects for 2009.

What is of note to me, however, is the behavioral aspect of the story.  The story discusses how these investors were largely “mocked for predictions that seemed outlandish at the time”.  Indeed, while I read Grantham, Schiller, Roubini, Krugman, Calculated Risk, etc., and believed that we were in for a difficult 2008, their predictions were so far outside the mainstream that it was difficult to communicate the risks with clients.

A very similar account is also in today’s WSJ Real Time Economics blog, “Ignoring the Oracles…”  This posts recounts a 2005 presentation by Raghuram Rajan to the Kansas City Fed’s Jackson Hole Symposium where he laid out many of the dangers that have come to pass and the way “he was attacked and then discounted”.

Economic forecasting and investing are all too frequently herd activities.

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