At the end of last September a close friend of mine asked for advice on Nanotechnology stocks. He told me he had doubled his money on seven representative Nanotechnology stocks during the last six months and was hoping to do even better in the future! At that time my forecasts treating his stocks as species in competition (see An S-Shaped Trail to Wall Street), did not look very promising. Moreover, they proved mostly right! Today (with data up to August 2, 2004) I am redoing these forecasts but also showing the original ones. Track record is the only valid way to evaluate a forecasting methodology and get a feeling on how often one must update the forecasts.
Exhibits 3 to 9 show one-and-half years of historical prices and forecasts. The inset on each graph shows the forecast last September. The legends contain comments that highlight interesting features of each particular case.
Exhibit 3. Old forecast (inset) proved right for a couple of months; excluding extreme swings, it makes sense even 9 months later. But new forecast pessimistic.
Exhibit 4. Following last September’s forecast the stock declined steadily for 3 months but at a rate less steep than forecasted. Today’s forecast again argues for a decline.
Exhibit 5. Last September’s forecast (inset) proved very accurate for a period of 2 months. Today’s forecast indicates that the many-month decline should level off around $6.
Exhibit 6. Last September’s forecast (see inset) proved correct for about a month and a half. This is a very cyclical stock. The declining phase of the most recent cycle should continue for another month or so.
Exhibit 7. Last September’s forecast (see inset) proved wrong! Yet, 9 months later we seem to beat around the same level. Another cyclical stock, it undergoes bursts of activity every month and half or so.
Veeco Instruments Inc
Exhibit 8. Another forecast of last September (inset) that proved wrong. This is one more cyclical stock with a period that varies between 1 and 3 months.
Flamel Technologies SA
Exhibit 9. The flatness of last September’s forecast proved right but at a level 20% lower than forecasted. This stock underwent major changes a year ago but then it behaved roughly coherently until recently. Last month we saw significant spikes of activity (in the exchange volumes of shares and dollars). If this is tantamount to new direction setting, the forecast should be redone soon.
The seven Nanotechnology stocks considered above have several things in common. They are cyclical and go up and down most of the time together. Turning points are Jan-03, Jul-03, Sep-03, Jan-04, and others. Consequently forecasts for these stocks should be trusted only for a few weeks and should be updated at least every couple of months.
To the extent that these seven stocks are representative of the whole Nanotechnology industry, we can generalize the above comments to the whole industry. On the other hand, the fact that not one in seven stocks has an optimistic forecast also makes a clear point about this industry.