As the popular Christmas song recorded by Andy Williams (and more recently by Garth Brooks, Harry Connick, Jr and others) says, “it’s the most wonderful time of the year.” However, this time of year can also be the most dangerous time for investors. The next few weeks will find us deep within the “silly season” of predictions about the economy and markets for the year ahead.
Predictions are Mostly Erroneous
If you want some instant awareness of just how erroneous most of the predictions are, pull out any publication you like from this time last year. Virtually no one predicted the overall economic growth or increase in the broad stock market. The consensus was, in fact, that markets would likely decline substantially.
Despite the awful track record, market predictions are published each year and investors can always find one that suits their own particular narrative. This is called Confirmation Bias and results in investors excluding information that doesn’t support their particular beliefs.
An Uncommon Prediction
One prediction that you may be unlikely to see is one that says, “Financial markets are expected to function normally.” While that indeed may be what is most likely, there is no call for immediacy or response to that prediction, so it fails the test for financial journalists.
Financial journalists would like everyone to believe that it is necessary to rely upon forecasts that outguess the market in order to be a successful investor. This is profoundly untrue.
Trust the Market, Not the News
Trust in markets is one of the cornerstones of the investing philosophy that we follow.
Tens of millions of investors buy and sell securities each day based on all available information and this helps sets prices. It is far better over the long-term to let markets work for you and avoid the temptation of trying to guess the short-term market direction.
No one knows precisely how the markets will perform during any period of time. This is both unknown and uncontrollable. Our aim is to help clients focus on what can actually be controlled. Your level of global diversification and how well you stay with your long-term plan are the most important controllable variables.
Investing is about uncertainty; financial prognostications promise certainty. That’s the emotional dilemma in a nutshell. Markets have historically rewarded long-term investors who remain invested through all market conditions.
Becoming a successful investor sometimes means being able to shrug off predictions, sentiment and noise. Take steps in 2017 to make 2018 better financially. Ready for a real conversation?