I have heard that 2016 is going to be a bad year for investment. We are going to spiral into another recession, possibly worse than the one in 2008, with the Chinese stock market continuing to drop like a stone and oil prices staying ridiculously low. But am I worried? No. Why, I hear you say?
People are always trying to predict what is going to happen with investments and a recent study showed that a monkey has just as much chance of guessing what is going to happen as a so called investment expert!
For the US, 22 strategists polled by the Wall Street Journal estimated an average increase for the S&P 500 of 8.2% for 2015. Their forecasts ranged from 2 to 14%. No-one picked a fall. As it turned out, the benchmark ended marginally lower for the year, so they were all wrong!
In the UK, a poll of 49 fund managers, traders and strategists published in early January 2015 forecast the FTSE 100 would be at 6,800 by mid-year and 7,000 points by year-end. As it turned out, the FTSE surpassed that year-end target by late April to hit a record high of 7103, before retracing to 6242 by year-end. Another fail for the ‘experts’!
It shouldn’t be a surprise that if economists can’t get the broad variables right, it must be tough for stock analysts to pick winners. Even a stock like Apple, which for so many years kept going up as more and more people bought iPhones and iPads, disappointed some forecasters last year with a 4.6% decline.
In Australia, among the “Top Picks for 2015” published by one media outlet a year ago were such names as Woodside Petroleum, BHP Billiton, Origin Energy and Slater & Gordon, all of which suffered double-digit losses in the past year. Oops!
Setting your investment course based on someone’s stock picks or expectations for interest rates, the economy or currencies is not a viable way of building wealth in the long term. Markets have a way of confounding your expectations. So the better option is stay broadly diversified and, with the help of an adviser, set an asset allocation that matches your own risk appetite, goals and circumstances, and stick with it, which is exactly what I do for my clients.
Of course, this doesn’t stop you or anyone else having or expressing an opinion about the future. We are all free to speculate about what might happen in the economy and markets. The danger is when you base your investment strategy on an opinion.
If you really want some predictions, then here’s 10 that really will come true in 2016:
- Markets will go up some of the time and down some of the time.
- There will be unexpected news. Some of this will move prices.
- Acres of newsprint will be devoted to the likely path of interest rates.
- Acres more will speculate on China’s growth outlook.
- TV pundits will frequently and loudly debate short-term market direction.
- Some economies will strengthen. Others will weaken. These change year to year.
- Some companies will prosper. Others will falter. These change year to year.
- Parts of your portfolio will do better than other parts. We don’t know which.
- A new book will say the rules no longer work and everything has changed.
- Another new book will say nothing has really changed and the old rules still apply.
