David Carroll

June 29, 2022

Market Volatility

How Accurate Are Market Predictions?

If you ask 100 different financial “experts” about future stock market performance, you’ll get 100 different opinions. Most will be wrong, but some, by sheer luck, will be correct (luck is often confused for skill). Investors often rely on expert opinions on what to do with their investments, especially in volatile markets like we are enduring today. Historical predictions prove that well known financial experts don’t know much more than you do:

1) August 1979, Business Week, “The Death of Equities”. This is one of the most infamous articles ever written about the stock market. Over 40 years ago this story was written about how inflation was destroying the stock market. An excerpt from the article stated “For better or worse, the US economy has to regard the death of equities as a near-permanent condition-reversible someday, but not soon.” As we all know, equities survived and appreciated 8,000% over the next four decades.

2) September 1998, Fortune Magazine, “The Crash of 98: Can the U.S Economy Hold Up?” Columnist Joseph Nocera said, “This time it is different. This time the market won’t be so quick to bounce back. Who can look at the world and not conclude that things have changed dramatically?” As we now know, this column did not age well for Nocera. To quote the famous John Templeton, the four most dangerous words in investing are “This time it’s different.”

3) January 1987, Ravi Batra book titled “The Great Depression of 1990”. You can probably guess what the book was about just from the title, and of course, the US stock market averaged an 18% annualized rate of return during the 1990’s. Pretty good for an economic depression!

It’s important to remember that pessimism is poison. New uncertainties pop up regularly, and markets have dealt with these uncertainties quite well despite what you read. If you let fear drive investment decisions you’ll likely end up burying your money in your backyard (which isn’t a sound investment strategy!). The best course of action is to develop an investment plan and stick to that plan persistently. Most importantly, focus your time and energy on factors you can control; how much risk to take with your investments, what mix of investments, and how much the investments cost to name a few.

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