The US stock market is often a good indicator of how stock markets in other countries will perform. If the Dow Jones Industrial Index is down 2% on a given day, share prices in Asia and Europe would often follow suit when their markets open the following day. In the case of less developed markets, a 2% drop in the DJIA often leads to an even larger decline in their local stock markets. I think this creates opportunities to buy overseas stocks at bargain prices.

Let’s say US stocks are down 2% because of more subprime worries and further job cutting from investment banks. The following day, Hong Kong’s stocks will be down more than 2% because of the slump in US stocks. However, what caused the US stocks to drop do not necessary affect companies in Hong Kong as much as those in the US. The effect of the credit crisis and the weakening of the US economy would not have that big of an impact to certain Chinese companies and so it seems irrational to me that share prices of China Mobile and PetroChina will drop as a reaction to the US stock market.

Because stock markets in emerging countries are less developed, there will be more swings and volatility. However, I think it would only give investors more chances to load up on high quality companies at bargain prices.

Recently, I read an article that talked about forecasting done by analysts and the like, and how inaccurate they are most of the time. What I found to be the most interesting was the very consistent relationship between past performance and future forecasts. Evidence shows that many forecasts are just lags of what happened in the past, and have no accurate forecasting power. Research done by DrKW Macro has shown that often, forecasts are so off that when bond yields were forecasted to rise, they actually fell more than half the time!

In the world of business, we are addicted to forecasting. Whether its companies forecasting their future performance, preparing budgets, estimating future yields, or trying to predict the GDP two years from now, we often create and rely on forecasts. Forecasts are only useful if they can portray reality but how do you ensure you forecast accurately? Is it knowledge, intuition, or something else?

Some interesting research that was done by Torngren and Montgomery suggests that knowledge may actually cause poor forecasting. A study done showed that professionals actually had less accuracy in picking stocks than those who had no professional knowledge. Experts who are overly confident may make narrow and specific forecasts, e.g. "I predict the earnings for the S&P 500 will move up by 3 to 5 percent", when the real answer lies outside their forecasted ranges most of the time. It seems paradoxical in that, because the professionals are confident about their ability to predict, they end up not being able to predict well.

So is forecasting useless? I would disagree. Sometimes, forecasting is useless. But sometimes it has its advantages to some extent, like preparing budgets that can help a company manage its costs over the upcoming period. The challenge lies in being able to forecast accurately enough so that it is useful. To improve the accuracy of forecasting, I think it is important to tie other indicators (including non-quantitative ones) to forecasting, like incorporating management effectiveness in predicting the future earnings growth of a company.

Small businesses face unprecedented challenges in today's market. The impact of the recession on all of us has been large, and small business owners faced the brunt of it. Many economic data indicate that the worst is over, and many establishments are wondering "What now?” How can small businesses (Industry Canada labels small businesses as below 100 employees) compete and grow?

Most information regarding businesses is geared towards medium to large sized firms. At the Sauder School of Business, a lot of emphasis is placed on large corporations and how those companies faced competition. What about the small businesses? According to Stats Canada, small businesses contribute over 25% of Canada's GDP, create more jobs for the economy than large firms, and spend more on research and development as a whole compared to larger firms who spend more per firm.

Of course, there are valid reasons for focusing on medium to large firms, and one being that small firms do not hire consultants who produce these research studies! Another factor is money - small businesses do not have the margins to implement many strategies. However, according to Dave Pohl at RBC, historic low interest rates and government stimulus makes today the best opportunity to invest. What small businesses lack are business knowledge and the desire for larger firms to work with small firms and cultivate their development. If the Canadian economy can tap into the potential of small businesses, the economic future of Canada is warm and sunny.