Beware of the Experts’ Market Predictions

’Tis the season for market predictions. Of course, I’d categorize this annual spate of magazine articles under the heading of “fantasy” rather than “finance.” Not unlike weather forecasts, market predictions—even those from reputable sources—are wrong more often than they are right. Simply, in spite of the headlines to the contrary, future market performance is unknowable. And that makes investing according to these predictions a dangerous way to manage money.

Just how wrong can the best investment minds be? Consider these four forecasts from Howard Gold’s article, 4 Things Doom-and-Gloomers Got Totally Wrong:

  • The stock market will crash. Gold writes about how Harry Dent, whose book, The Great Depression Ahead, was published in 2009, advised investors to stay out of the market between early 2012 and late 2013, a time when the S&P 500 advanced nearly 50%.
  • The euro will fail. Gold references an article in The Economist in November 2011 that states, “Without a dramatic change of heart by the European Central Bank (ECB) and by European leaders, the single currency could break up within weeks.” Of course, then came ECB President Mario Draghi’s memorable speech on July 26, 2012 when he vowed to do “whatever it takes to preserve the euro,” adding, “and believe me, it will be enough.” Clearly it was, as the hardest hit European nations of Greece, Spain, Italy, and Portugal are back on track.
  • Gold will hit $5,000 an ounce. Gold notes that in December 2009, Peter Schiff, CEO of Euro Pacific Capital, said it wouldn’t surprise him if gold “hit $5,000 in the next couple of years.” Gold eclipsed $1,900 in September 2011, but it’s been downhill ever since.
  • The United States will suffer hyperinflation. Marc Faber, the Swiss-born pundit who publishes the aptly named “Gloom Boom & Doom Report,” was a leading proponent of this mistaken view. The latest annual inflation rate for the United States is just 1.3% through the 12 months ended November 2014, as published by the U.S. Government on December 17, 2014.

If you’re interested in more predictions, 25 Predictions that Didn’t Come True is a quick, entertaining read, highlighting gems like, “A rocket will never be able to leave the Earth’s atmosphere.” (New York Times, 1936) and “Televisions won’t last because people will soon get tired of staring at a plywood box every night.” (Darryl Zanuck , movie producer, 20th Century Fox, 1946).

In fact, I suggest reading pieces like this and focusing on your own financial situation rather than wasting time reading and reacting to the flurry of market predictions for 2015. As I always say, changes to your investments should never be reactions to magazine headlines or market events, but should be prompted by changes in your own life. And now is a great time to reflect on last year and to plan for the years ahead.

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