Login

The Failure of Market Predictions – Part 1

13 January 2017

Headlines. They are the first thing our eyes are drawn to, as they just scream for our attention. And 2016 was a perfect example of why we should never read into headlines or let our emotions drive our decision making.

In Jan/Feb 2016, as the stock market was correcting in earnest, market pundits and economists had all but proclaimed the end of the current bull market. Citing figures such as high debt, the devaluation of the Chinese currency and the end of oil, many urged investors to run away from stocks.

Even well known “hedgies” like Carl Icahn and Stanley Druckenmiller sounded the death knell for stocks midway through 2016. These billionaires, with all their wealth, time and money invested in the stock market should and would know something more than average Joe Investor, shouldn’t they?

As stocks ended 2016 on a high, I wonder how all these forecasters, economists, strategists and market “experts” felt. Foolish? Sheepish? Hardly. They merely revised, edited, removed their earlier predictions and crawled back into the woodwork.

Why do experts get it so wrong? For one, investors should ask themselves – what do the experts gain from making such big bombastic statements? Perhaps they have a hidden agenda and have built up positions contrary to what they are saying. But the likely answer is that the world is so awash with such financial “talents” that the pressure to stand out is immense. What better way to get your statement reported than saying something attention-seeking and headline-grabbing? After all, if one predicts a bear market every year for the next 10 years, surely it will happen sooner or later?

What is the best way to invest, then? The optimal risk/return reward any investor can achieve is to hold a low-cost portfolio of diversified global equities and bonds. Because when it comes to predicting and forecasting, we are no better than “A BLINDFOLDED monkey throwing darts at a newspaper’s financial pages,” wrote Burton Malkiel in his book “A Random Walk Down Wall Street”.

#

If you have found this article useful and would like to schedule a complimentary session with one of our advisers, you can click the button below or email us at customercare@gyc.com.sg.

Go back to homepage

IMPORTANT NOTES: All rights reserved. The above article or post is strictly for information purposes and should not be construed as an offer or solicitation to deal in any product offered by GYC Financial Advisory. The above information or any portion thereof should not be reproduced, published, or used in any manner without the prior written consent of GYC. You may forward or share the link to the article or post to other persons using the share buttons above. Any projections, simulations or other forward-looking statements regarding future events or performance of the financial markets are not necessarily indicative of, and may differ from, actual events or results. Neither is past performance necessarily indicative of future performance. All forms of trading and investments carry risks, including losing your investment capital. You may wish to seek advice from a financial adviser before making a commitment to invest in any investment product. In the event you choose not to seek advice from a financial adviser, you should consider whether the investment product is suitable for you. Accordingly, neither GYC nor any of our directors, employees or Representatives can accept any liability whatsoever for any loss, whether direct or indirect, or consequential loss, that may arise from the use of information or opinions provided.

GYC Perspectives

Markets are often irrational. Even among experts, forecasting does not consistently work. We instead believe in Evidence-Based Investing (EBI), which uses decades of empirical data and the greatest ideas in financial science to optimise investment outcomes. No market predictions, no forecasts, no emotions. All those things rely on gut-feel and intuition that cannot be consistently replicated.

Here, we share with you the evidence on why EBI works and why forecasting doesn't, as well as articles on topics such as behavioural finance to help you become better investors. New here? You can start with this introduction to EBI. Happy reading!

© 2017-20 GYC Financial Advisory Pte Ltd | Co Reg No 199806191K