Things to Taken Note When Forecasting

things-to-taken-note-when-forecastingFrom fundamentalist point of view, investing is usually buying into something have higher intrinsic value compared to the current value. The determination of any company’s intrinsic value depends on several factors. However, not all useful factors are observable from the market. These factors could be implied by observing other factors. Furthermore, some required factors to determine intrinsic value could are forward looking.

There is a misconception regarding forecasting. Mind you, that forecasting is not equal to prediction. Simply said, prediction concerns about future certainty while forecasting looks at the hidden patterns among the current market situation in order to understand the possible trend that might arise. Therefore, forecasting is about identify possibility scenarios that might happen in the future while not focusing on some illusory certainties promised by prediction. Both agree on one thing, they not always correct regarding the future.

How is forecasting being done? An important information needed when interpreting forecast result is the method of forecast. There must be a logical process or deduction which the forecast is based upon. Once this process is known, readers or users of forecast result could make a judgement whether they agree with the forecasting methodology. Some readers may go through the same process to perform a review. There is a sense of accountability when it comes to forecasting. The most important part is to check the sanity of assumptions that are being made in the forecast process.

Lastly, forecasting is just a tool used to get a rough sense of what are the potential possible futures. Just like other tools, this forecasting tool can be improved as time goes by. Academicians and practitioners can propose new forecasting method. It is rather impossible that the forecasting could be as good as “predicting” the future. However, it is certain that better forecasting method could help us in understanding the market as well as human behavior better.

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