This is the time of year when firms trot out their annual Year in Preview outlooks.
These are counter-productive exercises for investors. First, they are little more than guesses. I mean that literally; there is no valid science to estimating stock prices, interest rates, inflation, bond yields, gold, bitcoin or whatever 12 months out.
Consider: How many strategists had “Global Pandemic, one million deaths, 34% market crash, but with huge gains in FAANMG stocks and a 12% annual S&P500 gain” in their 2020 Outlooks? None.
The future is both unknown and unknowable. Don’t blame Covid — wars, pandemics, natural disasters and other tail risk events are a feature, not a bug. The unprecedented occurs with alarming regularity. This is why the forecasters never stand a chance over the course of a year.
The most problematic issue is that when investors make (or adopt someone else’s) forecast, they tend to manage their portfolios towards that forecast. They want to be proven correct, regardless of the personal economic consequences. This human stubbornness led famed technician Ned Davis of NDR to title his 2000 book, Being Right or Making Money.
So instead of smart long term advice, what we get instead with these outlooks & forecasts are more transactional, temporary, and of the moment. Even today, despite trading commissions being (kinda) free. What these forecasts do is act as a glossy advertising campaign designed to attract new clients — not help existing clients. These provide little in the way of guidance for meeting long-term goals of retirement, generational wealth transfer, paying for college, buying a house, etc.
Predictions, as we have repeatedly noted over the years, are nothing more than marketing.
Ever wonder why so many forecasts cluster around the same points? Many forecasters simply take current price levels, extrapolate an average annual gain (e.g., 8-10% in equities) and anchor their forecast around that. This helps to explain why so many outlooks appear so similar — its simple extrapolation.
And, I say this as someone who has gotten some big calls more or less right. I only wish I could tell whether it was skill or luck, but that determination is beyond me.
Here is my outlook for 2021: We will all be even more sick to death of lockdown, more bored silly working from home, and damned tired of re-living the same Groundhog day over and over again. I predict Covid fatigue is no joke: it is real, and dangerous and frustrating as hell. At least there is some light at the end of the tunnel, with at least 3 vaccines in the late stages of approval. With a little bit of luck, maybe life begins to return to normal next summer.
I challenge you to find a more truthful 2021 outlook.
Predictions and Forecasts
The Halfway Point (November 20, 2020)
“Unprecedented” Uncertainty (June 9, 2020)
Forecasting is Marketing . . . (January 24, 2015)