8 Oct 2025 - Plans are worthless but planning is essential

'Far more money has been lost by investors preparing for corrections, or trying to anticipate corrections, than has been lost in corrections themselves.'
Peter Lynch, Learn to Earn, 1995

Warren Buffett has previously observed that for information to be useful in investing, it must be both important and knowable. While macroeconomic outcomes are undeniably important, evidence suggests they cannot be predicted with useful accuracy.

The forecasting fallacy

The track record of professional macro forecasting is remarkably poor. Prakash Loungani's 2001 study analysed consensus GDP growth forecasts from private sector economists across sixty-three countries, examining sixty recessions from 1989 to 1998. His analysis showed that only two of the sixty recessions were predicted a year in advance, two-thirds remained undetected by April of the recession year, and in about a quarter of cases forecasters were still predicting positive growth in October of the recession year. As Loungani concluded, "the record of failure to predict recessions is virtually unblemished."

Major institutions perform no better despite employing teams of PhD economists and having privileged access to non-public information. Andrew Brigden of Fathom Consulting examined International Monetary Fund (IMF) predictions across 194 countries, analysing 469 economic downturns from 1988 to 2018. The IMF successfully predicted only four recessions a year in advance - a success rate of just 0.85% - with all successful predictions involving smaller developing economies rather than major markets.

This pattern extends beyond recessions to other key macro variables. Figure 1 below shows two decades of professional interest rate forecasts consistently overestimating future yields and missing every major decline.

^{Source: Bloomberg, Philadelphia Fed Survey of Professional Forecasters, Apollo Chief Economist.}

Tellingly, the Federal Reserve struggles to predict even its own policy decisions. Figure 2 below highlights how Fed officials' projections of the funds rate (a metric they directly control) consistently miss the mark by wide margins.

^{Source: FOMC, Bloomberg, Apollo Chief Economist.}

The double prediction problem

Imagine that you could predict every recession, every inflation spike, and every policy change. Would you be guaranteed investment success? The surprising answer is no. As Howard Marks explains, "Even if you somehow manage to get an economic forecast correct, that's only half the battle. You still need to anticipate how that economic activity will translate into a market outcome. This requires an entirely different forecast, also involving innumerable variables, many of which pertain to psychology and thus are practically unknowable."

We see this challenge in action when identical economic news can drive markets in unpredictable, sometimes opposing directions depending on prevailing sentiment, prior expectations, and what's already priced in. Lower inflation could spark a rally (rate cuts ahead!) or trigger selling (economic weakness!). The recent inflation cycle illustrates this perfectly. Economists consistently underestimated how aggressively the Fed would raise rates to combat inflation, forecasting a peak Fed funds rate in 2022 of around 3.5% when it actually reached 5.25-5.50%. Yet even perfect rate forecasting wouldn't have helped predict the subsequent market behaviour. Basic finance theory suggests higher rates should pressure valuations, but the S&P 500 has hit repeated record highs since then, powered most recently by optimism around artificial intelligence. Perfect economic forecasting, in other words, is only half the challenge.