Consult almost any newspaper, magazine or website dedicated to finance and you will undoubtedly come across an article where a journalist makes his predictions. Not to be outdone, the strategists and economists of banks and brokerage firms also offer their forecasts.
How to navigate through these and who to trust when the forecasts differ so much?
If I may suggest a New Year’s resolution, it would be to ignore all those predictions that make headlines these days. If you want to read them, do it for entertainment, not to invest!
In fact, I believe that none of these forecasts have value. Some will likely turn out to be right, but how do you know which ones?
I believe that no one can repeatedly predict short-term stock market movements. Who predicted the war in Ukraine a year ago? Who anticipated COVID in early 2020? The world is too complex and unpredictable to make reliable predictions about short-term stock market movements. I believe it was Yogi Berra who said that “It’s tough to make predictions, especially about the future”.
Worse, relying on stock market forecasts tends to push us to deviate from our investment strategy and long-term goals. Reading a pessimistic forecast from a strategist, you might be tempted to sell stocks to increase your cash flow. On the other hand, another strategist’s optimistic forecasts could encourage you to increase the risk level of your portfolio.
Between you and me, next year’s stock market performance shouldn’t change your long-term portfolio performance too much. It is better to focus your attention on the prospects of your portfolio companies. If we absolutely have to draw forecasts for the markets, it would be better to do so over a horizon of five to ten years.
The New Year forecast period provides an easy way to write an article on the Stock Market. As it is to write a retrospective article of the past year. Either way, the added value they provide a long-term investor is zero (at best).
