Forecasting is hard. If you are right 51% of the time, you win big. Another way of saying it is that you are wrong effectively half of the time. Being wrong that often does not feel good and does not sell well, but it’s what it takes to be an investor.
Nowcasting is a form of contemporaneous attribution. It can appear right all the time. Think of describing the weather outside your window. You can go on TV and be very effective. The best cases of nowcasting is Howard Marks and Ray Dalio describing where we are in the cycle. Such nowcasts typically precede a forecast of what’s to come.
Nowcasting can look and feel like forecasting because you can imagine that the current state is likely to last at least another day. However, investors earn alpha when their forecasts are different from the nowcasts, which is another way to describe consensus.
Some nowcasts, based on advanced methods like narrative extraction in the economy, can be very informative about ‘what’s going on’ - perhaps creating a differentiated context for the Forecasting work to take place.
Backward looking ‘Pastcasts’, another way to describe attribution, rely on fitting a factor model to explain someone’s alpha or risk. Sometimes they produce big insights like Carhart’s momentum or Buffett’s Alpha revealing common factors in manager’s alpha. Yet identifying and investing in those factors in real-time is much harder than fitting the explanations after the fact.
Forecasts, Nowcasts and Pastcasts all have their right place in investing. The risk arises when the latter two start to disguise themselves as the first.