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DON’T LET PREDICTIONS cloud your thinking. When my husband and I first started investing, that was the wisest advice we received. You know the sort of predictions I’m talking about: “It’ll be a bad year for the stock market, so you should pull all your money out,” or “bitcoin is going through the roof, so stock up now.”
Last year, I decided to make a note of some of the predictions I read, and put them in my followup file for the beginning of this year.
For instance, a year ago, The Wall Street Journal asked its readers where the Dow Jones Industrial Average, S&P 500, 10-year Treasury note and bitcoin would finish 2022. They predicted the Dow would end the year at 36,853. The actual finish was 33,147.25, or 10% lower. The prediction for the S&P was way off. Readers were expecting a 6% gain, but instead the S&P finished down 18%, including dividends. They thought interest rates would be 2% when they were closer to 4%. Then there’s bitcoin, which fell 64.3% to below $17,000, nowhere near the year-end price of $53,900 that readers predicted.
To be sure, these were readers, not financial experts. But the experts didn’t do any better. The ones I read included a local Philadelphia investment firm, an online financial blog and a financial newsletter. They all predicted the Dow and S&P 500 would be up in 2022. They also predicted there would be four interest rate hikes by the Federal Reserve. There were seven. What did the experts get right? Bitcoin. They all said it would tank, and it certainly did.
How did 2022’s tumbling markets affect my husband and me? Happily, we were down a lot less than the S&P 500, thanks to some good financial advice and our conservative investment tendencies, including an emphasis on dividend-paying stocks. The interest rate hikes mean we’re now actually making some money on our cash. We’re also still ahead on the bitcoin we bought, but I consider that pure luck. What about the two other cryptocurrencies we bought? Let’s just say they’ll help offset some capital gains.
What happens when you put 10 economists in a room? You’ll get 11 opinions.
President Truman once said he wanted an economic adviser who was one handed. Why? Because the economist giving him economic advice usually said, “On one hand _____ and on the other hand…”
Another favorite: If all the economists in the world were laid end to end, they wouldn’t reach a conclusion.
This is not to be confused with the Dorothy Parker quip that, if all the girls attending the Yale prom were laid end to end, she wouldn’t be all surprised.
For every economist with a prediction, there is another economist with the opposite prediction and they are both wrong!
One problem with forecasting is reliance on past data. Many predictions merely extrapolate from recent experience expecting those trends to continue. Of course, market sentiment can shift suddenly and such shifts cannot be known in advance. As you point out, we should treat predictions about the markets as entertainment, not investment advice.
Consider that events with major market impact like the 9/11 terrorist attacks or the Covid 19 pandemic were never predicted nor could they have been. Such Black Swan events are, by their nature, unknowable before the fact,
No doubt your investment portfolio is well diversified. That diversification, your ignoring market forecasts when making investment decisions, and your “conservative investment tendencies” have served you well in the past and should continue to do so. (I assume that your cryptocurrency investments represented only a tiny percentage of your portfolio assets.)
The tide is going out on cryptocurrencies and I think we will now see which were swimming naked.
Peter Bernstein said, “Forecasts create the mirage that the future is knowable.” With that said the words of John Galbraith really ring true, “There are two kinds of forecasters: those who don’t know, and those who don’t know they don’t know.” This illusion of knowledge about the future is more dangerous than ignorance about the future.
Understand that you have no idea what is going to happen and plan accordingly.
I am retired, but since I am fairly well off I still add to my investment portfolio. If you don’t know what will happen in the future, dollar cost averaging is the logical way to go. It doesn’t matter if you are an index investor or buy individual stocks: invest the same amount every month. In the long run you will make money and increase your assets.