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Market Forecasts - What's The Point?

Based on a recent article by one of my product providers, but I couldn’t resist sharing….

Prediction is very difficult, especially about the future”.

This is a quote from Niels Bohr, the 1922 Nobel Prize Winner in Physics, and it seems to apply particularly well to financial markets.

Every year, millions of pages are written by financial analysts, strategists, researchers and specialists on where they see the markets heading in the future.

Every self-respecting investment company, bank and fund management house spends massive amounts of money, time and thought process, especially at year end, on forecasting how the markets will do in the following year.

They also continually update their forecasts (sometimes for a customer fee) on anything from a broad market index to an individual stock. The reports are well structured, logical arguments that are easy for someone to be convinced about, and to act on.

Sadly, most predictions are wide of the mark.

With so much data floating around, those few that made a correct prediction are glorified and attain a new following, whereas the vast majority of wrong forecasts are forgotten.

The undeniable fact is that forecasts are marketing tools in order to sell something. An article extolling the virtue of an asset ‘buy’ is easily balanced somewhere on the internet by an equal and opposite view, as well as a multitude of others, spanning the spectrum from ‘buy to sell’.

What is frightening is that investment companies adjust the management of their clients’ money based on their forecasts.

The Sohn Conference

Every year, the Sohn conference in New York hosts the “crème de la crème” of fund managers.

I should point out that the conference operates as a foundation, which to date has generated some US$90m for pediatric cancer-research in the USA, and its conference events in other countries have raised funds for similar local charities.

Famous managers are asked to give their top stock pick for the next 12 months. At the same time, columnists from the Wall St Journal’s “Heard on the Street” column, throw darts at a similar number of stocks.

The results at the 2019 event were quite brutal for the investment pros. The columnists’ picks outperformed the pros’ selection by 27% in the one year since the 2018 conference! The pros also lagged the main US market index by almost 20%. See chart below - ‘experts’ on the left:

All this brain-power, consideration and weighing up of the facts, only to be brutally beaten by a darts team!

So we are back to diversification - Buy the market, not the stock! In other words, consider investing in ETFs or mutual funds to spread risk, rather than select a single stock.

More information about this subject is also available via my articles:

For more personalised information about either diversification or buying the market, not the stock, please contact me


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