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Why We Don’t Make Market Predictions

History has shown that it is nearly impossible to determine what the numbers will be tomorrow much less next month or next year.

We are often asked where we believe a certain market or economic indicator is headed. Stocks, bonds, interest rates or Gross Domestic Product — no one can consistently and accurately predict what the future will bring, including the “renowned experts” who want us to believe otherwise. The fact is, history has shown that it is nearly impossible to determine what the numbers will be tomorrow much less next month or next year.

While we understand the desire for forecasts that purport to say where, for example, stocks will be by the end of this year, such predictions, at best, provide only a false sense of certainty. At worst they can do severe damage to an investor’s long-term financial objectives.

To illustrate the point, look how some infamous recent predictions fared:

  • Legendary Vanguard founder Jack Bogle should have known better. He has often stated that no one knows where the market is headed. Still, in an interview with Forbes magazine, he said he expected average returns in the domestic stock market to be “about 5 percent annually” from 1999 to 2009. The S&P 500 Index was actually down about 1 percent annually over that decade.
  • According to the Board of Governors of the Federal Reserve System, during testimony on March 28, 2007, Federal Reserve Chairman Ben Bernanke said: “The impact on the broader economy and financial markets of the problems in the subprime market seems likely to be contained.” Then Bernanke told the House Financial Services Committee in July 2008 that “the GSE’s (Government-Sponsored Enterprises) are adequately capitalized. They are in no danger of failing.” Of course, neither of these statements turned out to be accurate and the nation suffered the worst financial meltdown since the Great Depression.
  • On October 6th of 2008 Jim Cramer while live on the “TODAY” television show, said: “I thought about this all weekend. I do not want to say these things on TV. Whatever money you may need for the next five years, please take it out of the stock market right now, this week. I do not believe that you should risk those assets in the stock market right now.” If an investor sold out of an S&P 500 Index fund the next day, he or she would have missed out on a rebound of 79 percent over the next five years.
  • On March 19 2015, while on CNBC’s “Squawk Box”, entrepreneur T. Boone Pickens predicted the price of a barrel of oil would rebound to $70 by the end of the year. The barrel price of Crude Oil ended 2015 at $37.

These are just a few examples of recognized experts making predictions that turn out to be drastically wrong. There are many, many more; even the people who make their living forecasting markets are usually wrong.

In January of each year CNN/Money conducts a survey of 30- to 40 investment strategists and money managers to gauge what they believe the performance of the S&P 500 Index will be that year. Here are the results for the past five years, along with the actual performance of the S&P 500 Index for each year:

Markets Chart

The investment strategists and money managers missed the mark by an average of about 12 percent per year. The largest miss came in 2013. In January of that year many investors were very nervous about the prospects for stocks. There were concerns about the high valuation of the stock market, the potential for inflation to heat up, the level of debt the U. S. government had accumulated due to loose monetary policies after the financial crisis, the European sovereign debt crisis and slower growth in emerging markets. Yet the S&P 500 Index rocketed over 32 percent higher.

This is not to say those of us in the investment community lack intelligence. The world in which we live is just highly unpredictable. The HBKS investment team recognizes that in a highly unpredictable environment, it is foolish to predict. Instead, we focus on what we can reasonably expect. We can reasonably expect a certain level of dividends and interest income. We can reasonably expect the stock market to trend upward over the long term.

By focusing on what we can reasonably expect, HBKS Wealth Advisors does not rely on near-term market forecasting in managing client portfolios. Our solution is to develop with each one of our clients a prudent, globally diversified asset allocation designed for the long term. With the targeted asset allocation determined, we can view bouts of volatility as opportunities to rebalance the asset allocation back to our targets.

During periods of market stress, our advice is to stay the course and focus on the long term. Instead of obsessing over the daily news, we believe substantial movement up or down in an asset class can be an opportunity to rebalance your portfolio to take advantage of the eventual move in the opposite direction.

Income, diversification, asset allocation and rebalancing might lack the excitement of the predictions of the so-called experts. But focusing on reasonable expectations and long-term performance seems to us a better approach than trying to guess which turn the markets will take next.


The information included in this document is for general, informational purposes only. It does not contain any investment advice and does not address any individual facts and circumstances. As such, it cannot be relied on as providing any investment advice. If you would like investment advice regarding your specific facts and circumstances, please contact your financial advisor. Past performance of any product or category of products may not be indicative of future results. Different types of investments involve varying degrees of risk. Therefore, it should not be assumed that future performance of any specific investment, investment strategy, asset allocation, or asset class (including those recommended and/or undertaken by HBKS Wealth Advisors) will be profitable or will obtain any projected or anticipated result. Any statements made in this document are based on subjective analysis and cannot be relied upon as a guaranty of future results. Please remember that it remains your responsibility to advise HBKS Wealth Advisors, in writing, if there are any changes in your personal/financial situation or investment objectives for the purpose of reviewing/evaluating/revising our previous recommendations and/or services, if you would like to impose, add, or to modify any reasonable restrictions to our investment advisory services.

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