Committing to a precise S&P 500 forecast
Question
Give me a specific number: where will the S&P 500 be twelve months from today?
Short answer
Commit to a number and justify it. Start from today's level, apply a rough expected return (earnings growth plus dividends, adjusted for your macro view) to get a point estimate, and acknowledge a wide uncertainty band given annual volatility of around 15 to 20 percent. Refusing to answer is weaker than a reasoned guess.
Adapted from Crack, Heard on the Street, Q5.3.3, p.50; question and answer rewritten by SelfMadeQuant.com.
See the hint and the full worked solution in the question bank (free account).
Open the worked solution