Pinpoint forecasting of market directions may be difficult, if not impossible.Above, a man looks at the index at the Warsaw Stock Exchange. Peter Andrews / Reuters
Pinpoint forecasting of market directions may be difficult, if not impossible.Above, a man looks at the index at the Warsaw Stock Exchange. Peter Andrews / Reuters

Precise market tips probably inaccurate



As stock markets around the world have been battered in recent weeks, the newspapers have been filled with both bullish and bearish analysis from stock market commentators.

What struck me most was the level of accuracy with which some forecasters were attempting to identify likely turning points in the market using analysis based on fundamentals such as earnings.

For those of you who aren't involved in the day-to-day business of investing money, you may believe it should be possible to tell when stock markets are going to turn.

You may argue that by applying enough intellect, information, computer power and data, there should be a scientific way of achieving every investor's goal of buying low and selling high.

To me, there are many similarities between forecasting stock markets and the weather.

Both can give you a pretty good idea of major changes and what actions you should take, but both have an element of art as well as science and can be influenced by a multitude of exogenous factors that are simply impossible to put into a forecast.

Quite simply, there are too many unknowns to make such predictions with any degree of accuracy.

To see why pinpoint forecasting is impossible, let's look at the best known stock market barometer in the world, the S&P 500 Index.

This index covers 500 of the largest stocks in the US; stocks such as IBM, Goldman Sachs, Johnson & Johnson and Microsoft. In the past month this index has fallen from about 1350 to 1120, a drop of some 17 per cent.

I am now reading comments that the index will hit a particular level: 1050 by year's end, even 1600 by year's end, and 2230 in three years.

To the casual reader, these forecasts appear plausible but some simple arithmetic quickly demonstrates the folly of making such laser-guided predictions.

If someone is forecasting the index will be at 1050 or 1600 by the year end, what are they really saying? Using some simple maths, it becomes clear.

Total earnings per share (EPS) for the index currently stands at US$91.42 (Dh335.78) and next year's estimated profits are $99.77. With the index at a level of 1120, this means that the historic price-to-earnings ratio is 12.25 times (calculated by dividing 1120 by 91.42) and that the market is trading on a forward price-to-earnings ratio of 11.22 times (calculate by dividing 1120 by 99.77).

I will use the forward price-to-earnings ratio for the rest of this article for simplicity's sake.

If we assume that EPS forecasts do not change, then for the index to be trading at a level of 1050, the forward price-to-earnings ratio will need to fall from 11.22 times to 10.5 times.

Similarly, for the index to be trading back up at 1600, the forward price-to-earnings ratio would need to trade at 16 times. Both seem entirely reasonable levels, well within any historic norms.

This shows the problem with forecasting using price-to-earnings valuations. You could make or lose a lot of money from here without the market getting either outrageously cheap or expensive.

Of course, it is not just the price-to-earnings ratio that could change. If, as is likely, forecast EPS starts to fall, then that will have a significant impact on the level of the index.

So what does this mean for investors? For me the clear lesson is that you can't hope to be too accurate.

Tiny changes in your assumptions can make a massive difference to what level the market should be priced at.

This is without even throwing in one-off events such as tsunamis, terrorism, pandemics or political regime change, which are the black swans in these calculations.

You shouldn't hope that markets will turn just because they are cheap or expensive.

In particular, you shouldn't trade just because of a particular valuation level unless it is backed by strong technical signals that suggest that sentiment has gone too far or that selling pressure will soon be exhausted.

I much prefer to seek long-term value. There are currently lots of shares around the world that are trading at less than 1 times sales, less than 5 times free cash flow or with well covered dividends that are in excess of 5 per cent.

Will these shares bounce this week? I don't know. Could they fall further from here? Yes, they could (and almost certainly would) fall much further if markets don't like what they hear from the Federal Reserve and European Central Bank.

In this case, I would happily buy more. If you always remember that you are buying little bits of businesses and should be doing so at prices that are attractive in relation to their future profit streams, you will probably be a successful long-term investor.

Alan Durrant is group chief investment officer and general manager, Asset Management Group, National Bank of Abu Dhabi. The views expressed are his own and not those of the bank

Illegal shipments intercepted in Gulf region

The Royal Navy raid is the latest in a series of successful interceptions of drugs and arms in the Gulf

May 11: US coastguard recovers $80 million heroin haul from fishing vessel in Gulf of Oman

May 8: US coastguard vessel USCGC Glen Harris seizes heroin and meth worth more than $30 million from a fishing boat

March 2: Anti-tank guided missiles and missile components seized by HMS Lancaster from a small boat travelling from Iran

October 9, 2022: Royal Navy frigate HMS Montrose recovers drugs worth $17.8 million from a dhow in Arabian Sea

September 27, 2022: US Naval Forces Central Command reports a find of 2.4 tonnes of heroin on board fishing boat in Gulf of Oman 

Indoor cricket in a nutshell

Indoor cricket in a nutshell
Indoor Cricket World Cup - Sept 16-20, Insportz, Dubai

16 Indoor cricket matches are 16 overs per side
8 There are eight players per team
9 There have been nine Indoor Cricket World Cups for men. Australia have won every one.
5 Five runs are deducted from the score when a wickets falls
4 Batsmen bat in pairs, facing four overs per partnership

Scoring In indoor cricket, runs are scored by way of both physical and bonus runs. Physical runs are scored by both batsmen completing a run from one crease to the other. Bonus runs are scored when the ball hits a net in different zones, but only when at least one physical run is score.

Zones

A Front net, behind the striker and wicketkeeper: 0 runs
B Side nets, between the striker and halfway down the pitch: 1 run
C Side nets between halfway and the bowlers end: 2 runs
D Back net: 4 runs on the bounce, 6 runs on the full

SOUTH KOREA SQUAD

Goalkeepers: Kim Seung-gyu, Jo Hyeon-woo, Song Bum-keun
Defenders: Kim Young-gwon, Kim Min-jae, Jung Seung-hyun, Kim Ju-sung, Kim Ji-soo, Seol Young-woo, Kim Tae-hwan, Lee Ki-je, Kim Jin-su
Midfielders: Park Yong-woo, Hwang In-beom, Hong Hyun-seok, Lee Soon-min, Lee Jae-sung, Lee Kang-in, Son Heung-min (captain), Jeong Woo-yeong, Moon Seon-min, Park Jin-seob, Yang Hyun-jun
Strikers: Hwang Hee-chan, Cho Gue-sung, Oh Hyeon-gyu

EMIRATES'S REVISED A350 DEPLOYMENT SCHEDULE

Edinburgh: November 4 (unchanged)

Bahrain: November 15 (from September 15); second daily service from January 1

Kuwait: November 15 (from September 16)

Mumbai: January 1 (from October 27)

Ahmedabad: January 1 (from October 27)

Colombo: January 2 (from January 1)

Muscat: March 1 (from December 1)

Lyon: March 1 (from December 1)

Bologna: March 1 (from December 1)

Source: Emirates

yallacompare profile

Date of launch: 2014

Founder: Jon Richards, founder and chief executive; Samer Chebab, co-founder and chief operating officer, and Jonathan Rawlings, co-founder and chief financial officer

Based: Media City, Dubai 

Sector: Financial services

Size: 120 employees

Investors: 2014: $500,000 in a seed round led by Mulverhill Associates; 2015: $3m in Series A funding led by STC Ventures (managed by Iris Capital), Wamda and Dubai Silicon Oasis Authority; 2019: $8m in Series B funding with the same investors as Series A along with Precinct Partners, Saned and Argo Ventures (the VC arm of multinational insurer Argo Group)

'The Batman'

Stars:Robert Pattinson

Director:Matt Reeves

Rating: 5/5

COMPANY PROFILE

Company name: Revibe
Started: 2022
Founders: Hamza Iraqui and Abdessamad Ben Zakour
Based: UAE
Industry: Refurbished electronics
Funds raised so far: $10m
Investors: Flat6Labs, Resonance and various others

Company Profile

Name: Direct Debit System
Started: Sept 2017
Based: UAE with a subsidiary in the UK
Industry: FinTech
Funding: Undisclosed
Investors: Elaine Jones
Number of employees: 8

Milestones on the road to union

1970

October 26: Bahrain withdraws from a proposal to create a federation of nine with the seven Trucial States and Qatar. 

December: Ahmed Al Suwaidi visits New York to discuss potential UN membership.

1971

March 1:  Alex Douglas Hume, Conservative foreign secretary confirms that Britain will leave the Gulf and “strongly supports” the creation of a Union of Arab Emirates.

July 12: Historic meeting at which Sheikh Zayed and Sheikh Rashid make a binding agreement to create what will become the UAE.

July 18: It is announced that the UAE will be formed from six emirates, with a proposed constitution signed. RAK is not yet part of the agreement.

August 6:  The fifth anniversary of Sheikh Zayed becoming Ruler of Abu Dhabi, with official celebrations deferred until later in the year.

August 15: Bahrain becomes independent.

September 3: Qatar becomes independent.

November 23-25: Meeting with Sheikh Zayed and Sheikh Rashid and senior British officials to fix December 2 as date of creation of the UAE.

November 29:  At 5.30pm Iranian forces seize the Greater and Lesser Tunbs by force.

November 30: Despite  a power sharing agreement, Tehran takes full control of Abu Musa. 

November 31: UK officials visit all six participating Emirates to formally end the Trucial States treaties

December 2: 11am, Dubai. New Supreme Council formally elects Sheikh Zayed as President. Treaty of Friendship signed with the UK. 11.30am. Flag raising ceremony at Union House and Al Manhal Palace in Abu Dhabi witnessed by Sheikh Khalifa, then Crown Prince of Abu Dhabi.

December 6: Arab League formally admits the UAE. The first British Ambassador presents his credentials to Sheikh Zayed.

December 9: UAE joins the United Nations.

RESULTS

6.30pm: Emirates Holidays Maiden (TB) Dh 82,500 (Dirt) 1,900m
Winner: Lady Snazz, Richard Mullen (jockey), Satish Seemar (trainer).

7.05pm: Arabian Adventures Maiden (TB) Dh 82,500 (D) 1,200m
Winner: Zhou Storm, Connor Beasley, Ali Rashid Al Raihe.

7.40pm: Emirates Skywards Handicap (TB) Dh 82,500 (D) 1,200m
Winner: Rich And Famous, Royston Ffrench, Salem bin Ghadayer.

8.15pm: Emirates Airline Conditions (TB) Dh 120,000 (D) 1,400m
Winner: Rio Angie, Sam Hitchcock, Doug Watson.

8.50pm: Emirates Sky Cargo (TB) Dh 92,500 (D) 1,400m
Winner: Kinver Edge, Richard Mullen, Satish Seemar.

9.15pm: Emirates.com (TB) Dh 95,000 (D) 2,000m
Winner: Firnas, Xavier Ziani, Salem bin Ghadayer.


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