Forecasts and Hazy Crystal Balls

Investors are inundated with predictions, and it can be difficult to decide which forecasts have credibility.  It’s also been noted that some of the most successful investments are contrarian in nature, meaning that they were bets against the conventional wisdom and the “consensus forecasts”.

Here is a series of quotes from the September 2017 edition of Money Magazine.  Keep in mind that these forecasters are among the most highly respected individuals in the financial world.  (1) “It’s going to be agonizing.” (Thomas Forester, chief investment officer at Forester Capital Management). (2)  “It’s going to collapse” (Jim Rogers, hedge fund manager). (3) “Asset Holders will lose 50%”. (Marc Faber, Swiss investor and author of the monthly newsletter, “The Gloom, Boom and Doom Report.”) (4)  “All markets are increasingly at risk”. (Bill Gross. Manager of Janus Henderson Global Unconstrained Bond Fund) and (5) “There’s not enough fear.” (Rob Arnott, chairman and founder of Research Affiliates).

The one thing these investment market forecasts all have in common, other than their negative tone is that so far, they’ve been completely wrong.  With a September publication date for the magazine and allowing for the time needed to research and write the article, it’s safe to surmise that these forecasts date back to July-August of 2017.  What has transpired in the financial markets since that time?

Since June 30, 2017, the Standard and Poor’s 500 Index has experienced an 18.5% increase (as of January 26, 2018).  This growth is even more impressive when one observes that this increase does not even include the cash dividends that were paid by the constituent companies.  Most international stock markets have done equally well or even better as is the case in emerging markets.  One has to wonder how so many “experts” could be so uniformly wrong???

In the defense of these so-called “experts”, their grossly inaccurate forecasts simply point out the difficulty and futility of trying to predict the future.  The future is, of course, unknown and their results merely illustrate that fact.  This circumstance also points out how difficult it is to “time” the markets, i.e., attempting to move in and out of the financial markets with any degree of success.  For this reason, it is Level 5 Financial’s policy to eschew market timing.  Our process is to work with clients to reach agreement on the appropriate mix of stocks, bonds and cash for your portfolio and then to maintain those ratios throughout the ups-and-downs of the securities markets.