December is always an entertaining time of year. In what’s usually a year-end production, many fund managers issue their market forecasts for the year ahead – it’s a mix of optimists, pessimists, and sometimes silliness. Many investors read the headline predictions but few actually keep score to see who’s got the best crystal ball.
CXO Advisory Group does a lot of number crunching, and one of their specialties is holding market gurus accountable to their public predictions. It’s hard to image, but of over 68 experts and 6,582 public market forecasts from 1998 to January 2014, on average only 47.4% turn out to be correct. Flipping a coin will give better odds. But it’s not just individual managers that are off-base. Measuring 2012 targets for the 2013 year, the biggest US financial institutions missed their forecasts for S&P 500 performance by about 17.5%. Perhaps the worst offenders, though, are the glossy magazines with “10 stocks to own for the next decade” type headlines. Here’s Fortune’s list from the year 2000, where spending $100 to buy equal amounts of each stock would have resulted in a portfolio value of only $30 today. Ouch.
So this year I’m going to make my own prediction and say most year-end forecasts will be wrong. However I’ll hedge that a bit and say only 49.99% will miss the mark.
Prediction is about entertainment. Good advice is about disciplined planning and following process.
Ben Kizemchuk is a Portfolio Manager & Investment Advisor with Altus Securities Inc. in Toronto. He offers financial planning and investment management for high net worth Canadian investors. Ben focuses on high quality investments, the Growth and Income Portfolios, low risk investing, and reducing tax.