What Coin Flipping & Investment Forecasts Have in Common

July 25, 2022
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Around summertime, midyear outlooks for investment firms come out of the woodwork to the delight of stock market and economic geeks everywhere. Adjustments are made from the start of the year while forecasters, chart wizards, and data heads announce changes to their outlook given how the world shifted over the past six months.

Here are some of them…

LPL Financial, one of the biggest independent broker-dealers out there, sees S&P 500 fair value at year being between 4,300 and 4,400, which is up to 10% higher than today.1 Wells Fargo, one of the 20 largest banks in the world, has a similar year end outlook but a broader range targeting a year end value for the index at 4,200-4,400.2 The well-known investment bank, Morgan Stanley, is a bit more cautious seeing the base case for S&P over next 12 months a touch lower than where it is at the time of this writing at 3,900.3

The index fund creator and low-fee behemoth, Vanguard, looks out farther, and has raised their relatively conservative outlook of the next decade, seeing US stocks returning about 3.4% - 5.4% annualized over the next ten years.4 This is a full percentage point higher than their estimates at the end of 2021.

All of this is interesting. Or not.

And you probably shouldn’t bet the bank on any of them.

One study revealed that among a set of investment experts stock market predictions, only 47% or so ended up being accurate.5 Now this measured individual investment experts like CNBC’s rather excitable Jim Cramer and not investment firms.

But predictions are just that—guesses—even when they are educated ones.

I’ve beat this drum before. And I will beat it again.

Warren Buffet’s sage advice on this point should be heeded, “We will continue to ignore political and economic forecasts, which are an expensive distraction for many investors and businessmen.”6

I won’t ignore them because that’s part of my job, but I also think a bigger part of my job is to get you to try your best to do just what Warren said.

Here it is for you in annoying italicized all-caps: IGNORE.

If you don’t, it just might cost you.

My goodness have we seen both kinds of forecasts—politics and economics—wreak emotional and financial havoc.

The chances of a forecaster being right may be just as good as taking out one of those quarters that’s been sitting under the dash in the front seat of your car since 2011 and flipping it to determine which forecaster you’ll follow.

Disregard the noise. Stay disciplined and stick to a plan to reach your goals that accords with your risk.

Sometimes this kind of ignorance is bliss.

_____

Sources:

1. https://www.lpl.com/content/dam/lpl-www/documents/research/outlook/LPLFinancial-MidYear-Outlook2022.pdf (Page 9)

2. https://saf.wellsfargoadvisors.com/emx/dctm/Research/wfii/wfii_reports/Investment_Strategy/outlook_report.pdf  (Page 4)

3. https://www.morganstanley.com/ideas/investment-outlook-mid-year-2022-global-risk

4. https://advisors.vanguard.com/insights/article/marketperspectivesrecessionrisksahead?cmpgn=FAS:EM:MC:654786439895

5. https://www.cxoadvisory.com/gurus/

6. https://www.berkshirehathaway.com/letters/1994.html