Magic 8-ball Forecasting

Hindsight is 20/20, as they say.  Unfortunately, since my benevolent overlords editors here at Beachcomber have these things called “deadlines”, there is absolutely zero hindsight available for this first Rogue Waves of 2020, as it is, in fact, still 2019 as I write this.  Which must mean it’s Magic 8-Ball time!

What’s that?  You think we meant to say “crystal ball”?  Ah, yes, that is to be expected given all the punny ways you can put “vision” and “2020” together for economic forecasting.  But from time to time we like to refrain from beating a dead horse. And also, economic forecasts are useless.

Seriously, though.  Go back two years and find a forecast that said “markets will drop 20% in the fourth quarter”.  There weren’t any...except for the crazies who predict market crashes every year.

Or go back to this time last year - the market was in the middle of said 20% drop.  Find me a forecast that said stocks would be up 25% for 2019. There weren’t any...except the crazies who predict market booms every year.

We can’t even determine employment numbers or GDP in real-time, much less forecast with any accuracy an entire year into the future.  (Not kidding - all the headline “jobs numbers” and “quarterly GDP” you hear about? They keep on getting quietly revised for months after they come out.)

Another problem with forecasting is that it’s kind of like the news.  Any investment shop that puts out a forecast clearly wants to people to read it...and probably buy whatever they’re selling.  Something like this:

Well, GDP growth over 3% probably isn’t sustainable ever again, and we’ve got a debt problem nobody talks about, but most fears about the economy are overblown and just sort themselves out.  Plus, we’ve got a Fed that seems to have conflated the stock market with the actual economy, so chances are we’ll be down double digits at some point this year but will likely finish the year up mid-single digits.

...while a perfectly accurate (and recyclable!) forecast, isn’t very sexy.  So you need to do something like “Will the Market Drop 65%?” or “Dow 1,000,000 Is Coming!”.  Which of course are nonsense.

Also, who cares where the market closes on December 31, 2020?  That’s an honest question - if you have an answer, I’d love to hear it.  Are you pulling all your money out of the market on New Year’s Eve? Nope, I bet it will still be there come New Year’s Day.  Does Jan 1 - Dec 31 performance of one year have anything at all to do with Jan 1 - Dec 31 performance of the next year? Also nope.

Wouldn’t it be better, instead, to worry less about consulting the Magic 8-Ball and focus more on trying to assess the mood of the markets in real-time?  We think so, and that philosophy underpins how we manage our portfolios.

But for all of you that we don’t manage portfolios for (yet…), stick to your long-term plan and don’t worry so much about what may or may not happen this year.  If you’ve got money in the markets, make sure it’s money you’re not going to need for the next 2-3 years. Also make sure you either have some kind of sell discipline in place or an allocation that you’re perfectly comfortable holding through any interim market correction, if you’re more the buy-and-hold type.

Questions about any of that?  Getting more control of your finances on your New Year’s resolution list?  Drop us a line, that’s what we’re here for - russ@atiwealthpartners.com.

Happy New Year!