It’s Silly Season for Market Predictions

Warren Buffett once said, “The only value of stock forecasters is to make fortune tellers look good.” At this time of year – when media outlets are brimming with forecasts and market predictions for the 12 months ahead – it’s wise to heed Buffett’s advice.

Just look at Wall Street’s dismal record in divining the future. Not long ago, Morgan Housel, a columnist for The Wall Street Journal and the Motley Fool, reviewed years’ worth of predictions from 22 top Wall Street strategists. He found that, between 2000 and 2014, the “experts” misjudged the return of the Standard & Poor’s 500 index by an average of 14.6 percentage points every year.

Analysts aren’t even very successful in predicting the future of single companies. According to a 2012 academic study of analysts’ 12-month price targets, 63% of the time the target price remained above the market price, and 27% of the time the target price was never met.

At Intelligent Capitalworks, we have always espoused a disciplined, patient approach to investing for those with important long-term goals like funding retirement. But the wild inaccuracy of Wall Streets’ predictions makes it even more clear that chasing predictions is harmful to your wealth.

What the Wall Street/financial media prediction machine gets wrong is that successful investing is not about timing the market; it’s about time in the market. Changing direction based on the latest market outlook or stock tip is like putting a cake in the oven, checking it in 15 minutes, and then taking it out and replacing it with a new one. Time is one of the indispensable factors that makes your investments meet their potential.

Given the market’s recent turbulence, some investors may be tempted to get out altogether until things improve. That too is a mistake. Remaining invested in the market through its inevitable ups and downs has historically been far more profitable than attempting to time the market.

Analyses of S&P 500 returns since 1928 have shown that the longer you’re in the market, the less likely you are to lose money. The probability of loss decreases markedly after just one year, and continues to fall over ensuing years as long as you say invested.

“Successful investing,” Buffett has said, “takes time, discipline and patience.” The key to discipline and patience is to invest according to a well-designed plan. It will help you stay calm and on-course when markets turn rough, or when they’re besieged by breathless predictions and investment tips from persuasive-sounding commentators. Heeding market predictions is the antithesis of this proven approach – and that’s why you should resolve to tune out the noise.

If you’re interested in developing a disciplined approach to planning and investing to help you meet your financial goals, we may be able to help. At Intelligent Capitalworks, that’s just part of what we do.

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