It’s time to come clean: We don’t actually have a secret source in Davos, Switzerland, and we aren’t producing batches and batches of Market Goggles.

Yesterday, April 1, was The Motley Fool‘s de facto annual holiday, and our special report, “The Hugest Bubble in History Set to Explode,” was our April Fool’s Day joke. We hope you enjoyed it. (Special thanks to the annoyed readers who, without realizing the day, wrote to chastise us over the word “Hugest” in the headline.)

Bubble, bubble, toil and trouble
With the S&P 500 wrapping up the first quarter at a record high, there are quite a few pundits, of course, who do believe we are experiencing a market bubble right now.

At the website Minyanville, an anonymous source talks of an impending credit crisis, and warns, “When the music stops, there will be no chairs.” The economic forecaster Harry Dent is far more precise, and declares that we’ll have another crash by this summer. And just last Sunday, David Stockman, President Ronald Reagan‘s former budget director, wrote, “When the latest bubble pops, there will be nothing to stop the collapse. If this sounds like advice to get out of the markets and hide out in cash, it is.”

On the other hand, professor Aswath Damodaran, a valuation expert from New York University, recently attempted to value the entire stock market, and he came away thinking “there are good reasons why US stock prices are elevated.” He notes that cash flows are high right now, and growth prospects are encouraging. After completing his valuation exercise, Damodaran intends to “stop worrying about the overall market and go back to finding undervalued companies.”

So, are we in a bubble or not?

We have no idea. It’s likely, however, that the pundits who are predicting a crash in the near future have no idea either.

How much does a chimp charge?
Philip Tetlock, a professor of psychology at the University of Pennsylvania, has studied the performance of pundits, and the results aren’t encouraging. He found that forecasters performed no better than the “proverbial dart-throwing chimp,” and he also discovered that “the more famous the expert, the less accurate his or her predictions tended to be.”

Tetlock did learn that some pundits performed better than others. The better forecasters tended to be “self-critical, eclectic thinkers who were willing to update their beliefs when faced with contrary evidence.” The less successful ones were more like our secret source: overconfident, persuasive, and committed to some big, overarching vision.

Insist on accountability
Motley Fool co-founder David Gardner has been talking a lot lately about how we must insist on everyday accountability — whether it’s on a stock pick or a market call — from our financial media. Investors need to be able to know which financial predictions to value, and which ones to discard. That’s why …read more
Source: FULL ARTICLE at DailyFinance