Prediction is a key part of any investment. Buyers do not pay for historical performance. They buy what they perceive that the company expects to generate in the future. Even if this expectation is often influenced by past results, future prospects are crucial. Sometimes, the future is not performance reflect the historical performance. Here are some examples of when the historical performance is not a good gauge of future expectations.
1. expected Future performance of a company pay phone after cell phones.
2. Future performance expectations a small town lumber yard after Home Depot moves along the way.
3. Future expected returns of a local automotive parts supplier after its main customer announced he will be their automotive assembly plant and lay off all employees within 12 months.
Do you want to buy stock in any of these companies based on a forecast of historical performance? Changes in technology, competition and customer buying patterns can and have an impact on future activities of the company. Sometimes the impact of these changes is not part of the historical data of the company.
The economy also has an impact on the future performance of a company. Meteorologists use barometers and other tools to predict future weather conditions. As meteorologists, economists and business experts use tools and techniques to predict future economic conditions. Although there is no single economic indicator that is always accurate in predicting the economic cycle, there is a mixture of economic indicators that tend to move up and down in front of the business cycle.
This composite material is more commonly known as composite index of leading economic indicators. This composite indicator is used to predict future economic activity about six to nine months in advance. As a rule, three months of sustained decline in the index indicate the beginning of an economic downturn. A good place to find this information is on the website of the Conference Board http://www.conference-board.org. Just look at the main index section.
National economies, local and State need to be understood before making a prediction. Knowing how the national economy influence the economy of the State and the State economy impact the local economy is crucial to a credible forecast. Have a good understanding about the industry, competition, suppliers and Government regulations is essential for credibility.
A forecast made by an independent professional with an unbiased point of view will be more credible than a prediction made by an insider.
Let’s Face It. Depending on the reason, some forecasts are designed to be an apocalyptic scenario as forecast owner, when he or she must buy a shareholder. Weather may also be too optimistic when it comes time to sell the business. Here are a few things to remember. An analysis of the history of society is not a prediction. A weighted average historical performance of the company isn’t even a prediction.