Those who have followed this column the last 20 years are well aware of the fact that I am no fan of the financial media. One of my biggest pet peeves with the financial media (and much of the investment industry) is its obsession with making stock-market predictions. At the start of every year, the so called “stock-market experts” in the financial media unveil their predictions for what the stock market will return in the coming year.
This year is no different.
Twenty market strategists from major U.S. financial institutions recently surveyed by CNBC predicted that U.S. stocks will gain between 8% and 22% in 2021. Out of the 20 strategists interviewed: 12 predicted stocks would gain between 18% and 22%; four predicted stocks would earn between 0% and 4%; and four predicted stocks would lose between 4% and 20%
Of what value are all of these useless predictions to investors? What type of investment strategy should be based on this type of foolish tarot-card approach to investing?
I am always amazed how so many investors are actually interested in what the so-called “stock-market experts” predict the stock market will do. If all of these so-called experts know what the stock market is going to do, shouldn’t they all be predicting the same thing?
When their predictions turn out wrong (as they almost always do), they will always blame their predictions turning out wrong due to some unforeseen event. “Who would have ever thought or imagined that (fill in the blank) and (fill in the blank) would have occurred.”
During my 20 years as a financial adviser, the one question I have been asked more than any other is, “What do you think the market will do?” My response has always been the same: “I honestly don’t know.”
Anyone with an answer other than “I don’t know” is lying.
The truth is, no one can accurately predict the stock market for any meaningful period of time. Nobody knows with any real certainty if the stock market will go up or down tomorrow, next week, next month or next year. The fact is that stock-market forecasts and predictions are nothing more than a marketing gimmick designed to attract new viewers, listeners and clients.
The financial media and investment industry know that investors hate uncertainty, and predictions provide a false sense of certainty about the future.
If financial forecasting is meaningless, how should investors manage their money and make their investment decisions? Successful investing is about following a disciplined investment strategy based on proven Nobel Prize-winning investment concepts and techniques, such as asset allocation, Modern Portfolio Theory, risk management and diversification.
The stock market can be a very expensive and costly place to learn that no one is endowed with the gift of financial prophecy. As the saying goes, there are three types of stock-market forecasters: those who know that they don’t know what the market is going to do; those who don’t know that they don’t know what the market is going to do; and those who know that they don’t know what the market is going to do, but get paid lots of money to pretend they do.
Martin Krikorian is president of Capital Wealth Management, a fee-only registered investment adviser located at 9 Billerica Road, Chelmsford. He is the author of the investment books, “10 Chapters to Having a Successful Investment Portfolio” and the “7 Steps to Becoming a Better Investor.” Martin can be reached at 978-244-9254, Capital Wealth Managements website; https://ift.tt/1ieUUGe, or via email at, info@capitalwealthmngt.com.
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December 27, 2020 at 01:41PM
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Ignoring stock-market predictions for 2021 - Lowell Sun
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