Alfred Cowles: Financial Services Firms

financial services firms: Cowles presented the results of his analysis of the forecasting efforts of professional agencies which attempted either to select common stocks which would outperform the market or predict the future movements of the stock market. The agencies he analyzed included 20 insurance companies, 16 financial services firms and 25 financial publications. He analyzed data from Jan. 1, 1928 through July 1, 1932. , according to Market Watch. Cowles used mathematical probability analysis to determine whether the most successful firm's 21% annualized return could be attributed to skill. He concluded that among 16 firms, a return of such magnitude should be expected to occur at least once by random chance alone, so it couldn't be definitely attributed to skill. In this installment of "Things Written Long Ago That I Wish I Had Read Long Ago" we'll look at the article, Can Stock Market Forecasters Forecast? , written by Alfred Cowles and published in the July, 1933 issue of the economic journal, Econometrica . The first group studied was 16 financial services firms which regularly submitted to their subscribers a list of recommended stocks. His analysis followed about 7,500 separate recommendations. Only six of the 16 firms were able to recommend stock purchases that produced gains during the period under study. The firms' recommendations generated annualized returns of between a 21% gain and a 33% loss. The average annual rate of return for all 16 firms' recommendations was less than the stock market's average annual return for the time period studied. (news.financializer.com). As reported in the news.