Finance Gurus, Crystal Balls and Predictions

By David Eckess

Every January investment experts and firms publish their market forecasts for the new year.  You will hear about top down, bottom up, qualitative analysis, quantitative analysis, proprietary forecasting models and the list goes on. These experts, with some degree of fanfare, proclaim where they believe the financial markets will end the year and their reasoning for it.  Then, at mid-year the revisions pour in as "adjustments" to first of the year forecasts have to be made.

 If any of these experts, economists, strategists or others are lucky enough to predict the year-end values correctly, they will pull out a soap box, stand up and profess their brilliance. The firms they work for will create a marketing campaign around them. The commentators at CNBC, Bloomberg TV and Fox Business will be stumbling over themselves to get the first interview and ask what is in store for the next year. But that doesn't happen very often. Rarely do the experts get it right. Indeed some investment gurus will come close to forecast but most will miss and others will flat out blow it! Early in my career, one of my mentors gave me a gift with a note attached saying "everyone in the industry needs one of these" and I unwrapped a brand new, bright, shiny crystal ball. I still have that crystal ball, the base is a bit tarnished now but still a useful paperweight.

Last year (2014) was another good year for the equity markets. The S&P 500 gained 12.63% and the Dow Jones Industrial Average was up 8.54%. In reviewing forecasts for 2014 I was unable to find any experts that predicted the years performance . In all fairness there are some who have consistent records of success; and while they don't particularly nail it, they at least come close and were on the right track. When we find these strategists we listen to what they say and maybe lean toward them. However, it is not a matter of if but when they too will get it wrong.

After 29 years as a financial advisor I have heard many aphorisms that tend to hold true as they pertain to the stock markets. Consider these as you gaze toward the rest of the year and beyond:

Don't fight The Fed (Federal Reserve Bank).

Don't tell the market what to do, let the market tell you what to do.

Never confuse brilliance with a bull market.

You pay a very high price in the market for a rosy consensus.

Market forecasts for 2015 are no different than other years. The predictions run from one extreme to the other. Perhaps next January there will be an expert who can stand up and profess their brilliance, but don't hold your breath.