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[FOUNTAIN]The hardest prediction

Published: 29 Nov. 2005, 21:37

This is a joke from the British weekly magazine The Economist: Albert Einstein died and went to the afterworld. The line of people waiting for judgment on whether they would go to heaven or hell was too long. Einstein got bored and asked the person next to him, “What is your IQ?” The answer was 150. Feeling delighted, Einstein said, “Then let’s talk about the theory of relativity.” The talk finally ended, but the line was still long.
Einstein asked the person behind him, “What about you?” The person said, “120.” Einstein said, “Let’s discuss world peace.” He then asked the person in front of him, “What’s your IQ?” The person said it was 80. Einstein thought for a long time about a discussion topic, then said, “Let’s forecast the economy.”
The hardest economic forecast is predicting stock prices. Peter Lynch is a legend on Wall Street. With $20 million, he made $13.2 billion, 660 times the original amount in 13 years. But in his book, “One Up On Wall Street: How To Use What You Already Know to Make Money In The Market,” Mr. Lynch confessed, “I tried to predict an economic slump, but it was impossible.”
In the summer of 1929, John Raskob said, “Everybody ought to be rich,” noting that if one invests $15 a week in a blue chip stock, 20 years later he will have $80,000. (This is possible if one receives a 24 percent annual return.) Everyone went wild and invested their money in stocks. On Sept. 3 of that year, the Dow Jones Industrial Average hit a peak of 381.17. However, just seven weeks later, on Oct. 29, the stock market had its worst decline ever. On July 8, 1932, when the 34-month-long slump ended, the Dow index was only at 41.22. Forbes magazine in 1992 named Mr. Raskob the “worst criminal” in the history of the stock market.
In April 1999, Lee Ik-chi, the chairman of Hyundai Securities Co., made a passionate speech to investors. “The way to save the Korean economy and earn money is to invest in the Buy Korea Fund,” he said. He also predicted, “In 2005, the stock market will rise to 6,000 points.” Tens of trillions of won were put into stocks, and the index, which was only 636.89 on April 1, rose to 1,059 on Jan. 4, 2000. But that was all. It took five years for the market to recover after it fell below 1,000.
This is the season of economic forecasts. The Kospi, which started at 893.71 at the beginning of the year, is near 1,300. Some predict that it will reach 1,600. Anyone can make predictions, whether it is Einstein or a person with an IQ of 80. It is good if the forecast is correct, and if not, there is nothing we can do about it. The loss is the share of people who believe a rash forecast.

by Yi Jung-jae

The writer is a deputy business news editor at the JoongAng Ilbo.