Chapter 4

Turning Point
 The basic premise for using statistical projections
of the past as forecasts of the future is that the
past trends will continue, or, to state it more
usefully, that the forces that shaped behavior in
the past will persist unchanged.
 Unfortunately, “the future ain’t always what it
used to be.”
 The following are a few reasons why it is seldom
safe to assume that the future is going to be a
clone of the past.
 1. Corporate strategies change.
 2. Technological advances create new products
and make old ones obsolete.
 3. Competitors reduce the price or improve the
quality of their products.
 4. New competitors enter the market or old ones
leave.
 5. Upheavals in political forces and the social
environment change what consumers want or
 can afford.
 6. Periods of economic expansion are followed by
recessions
 Blind reliance on statistical projections of the
past is like driving down a highway while staring
in the rear view mirror.
 It would be wrong, however, to conclude that
projections of the past are worthless. To ignore
them because of their shortcomings is to deprive
oneself of the lessons of history.
 What is needed is a combination of what we
know about the past and what we can
anticipate for the future.
 Long-range forecasting is best viewed as a two-
step process that begins with statistical
projections of the past and adds the best
judgment of how past trends might change.s
 To simplify the forecasting procedure, it is helpful
to separate a sales forecast into two parts:
 (1) The overall markets for the types of products
or services being forecast and (2) the company’s
shares of the overall markets. Each part is
adjusted differently.
 A company’s sales is the product of the total
market for its products multiplied by its market
shares.
 General economic conditions, political forces, and
demographic factors that are outside a company’s
 control affect the overall market. A company can
respond to the external forces but has little or
no control over them.
 A company’s market shares, however, are largely
determined by its strategies and the strategies of
competitors, such as the prices charged for
products, the quality of products, advertising, and
customer relations.
 Preparing for the future is a two-step process
that includes (1) recognizing or anticipating
changes
 and (2) reacting or adjusting for them.
Recognizing turning points is important to a
corporation’s top executives for changing long-
term strategies and to its managers for shifting
operating tactics. It is also important to investors
and lenders who are considering buying stock or
lending money.
 Turning points provide valuable insights into the
effectiveness of a company’s management in
changing long-term strategies or short-term
operating tactics
Disruptions Caused by International Events
 The overall trend of the stock market over the
past century has been upward. As part of that
overall, longterm trend, there have been periods
of inflation and recession.
 Short-term trends have consisted of a series
 of plateaus, when the indices were fairly stable,
separated by drops and rises. Special situations
can upset
 the market drastically and cause drops or rises
that can be very severe and abrupt