Forecasting – I’m no Nate Silver

[one-half][/one-half][one-half last]Nate Silver is known for doing an amazing job of predicting outcomes of elections. Unfortunately, I can’t claim such distinction. But I have done a few forecasting while in the finance/project control departments and have had a few successes. The following is my favorite story.

Back in 1998, I was working as a financial analyst for an IT outsourcing firm that serviced a few oil companies. At the time, we were undergoing the crazy dot com era and we had to do monthly forecasts, although they said that the forecasts were to be done quarterly. It was a crazy time. One night, late in the evening, I wanted to do something different because the forecasts were beginning to sound the same every month. I had been reading a couple of articles about certain rumors in the oil industry and thought to add a flavor to the forecast by talking about what was “heard in the street”. Give the corporate office a little more insight to what was going on in the industry and tie to the program results and client behavior.[/one-half]

I debated a long time before hitting the send button because the topic was merger speculations in the oil industry which was practically unheard of at the time (Unocal being the exception). I was talking about the oil price and the rumors and it was way out there.

I took a deep breath, hit send, and then went home.

The next morning, my boss called me and said, “Veronique, come down to my office.” Gulp. Maybe it was too “way out there” for my boss. She was usually accepting of outre ideas but this might have been too much. I walked into her office with a smile on my face, gearing up to bear some ridicule for an outlandish forecast. Mind you, I was not actually forecasting that a merger was imminent; I was just stating that there was a lot of speculation. She looked at me, paused, and then started to read my email. When she got to the sentence where my crazy idea was starting, she stopped and looked at me with a piercing look. I smiled back tremulously and thought, “Here it comes”. She turned to start reading again when the phone rang. One of our operations manager based in Cleveland was calling in.

“Carolyn, you’ll never believe what is going on! It’s crazy over here. It’s huge!! It’s all that people can talk about. BP just announced a merger of equals with Amoco.”

Whoa!! My mouth dropped open.

My boss jerked, turned to my email, to the very sentence that she was just going to read  out loud, talking about mergers, and then turned back to me.

She said “You’re scaring me!”

That was the best forecast I ever made. The point of this story? You have to keep your ears on the ground, listen and read everything to keep up with what’s going on. You can’t just run the numbers because there will be things happening that will not show up in the historical numbers. Kaiser Fung has more illustrations about forecasting that I will talk about in the next post.