“Predicting is Hard, Especially About the Future…”
February 27, 2023
By Michael Moreland
Retired Vice President of Investments
The quote in the title of this article is attributed to people as varied as Nobel Physics Laureate Niels Bohr and Baseball Hall-of-Famer Yogi Berra (both, however, experts in their fields).
We’re revisiting this theme as we are winding up one of Wall Street’s enduring practices – the publishing of market outlooks for the new year. While most are written with a large degree of latitude, they are important because they set a tone for sentiment, and thus a course of action for many investors.
Where the Problem Lies
There’s only one problem…more often than not, most forecasts are wrong – wildly wrong. The Vanguard Group, Inc. – one of the world’s largest fund managers – recently published an analysis of the accuracy of major firms’ and analysts’ year-ahead outlooks. The ‘big picture’ results are shown in the chart below:
Source: © the Vanguard Group, Inc., used with permission.
As shown, over the last dozen years, one-year results fell outside predicted ranges three-quarters of the time. And not always by a small margin – they were often well outside the most bullish or bearish single-point estimates.
The Best Process For Investing
The lesson to take away is that investing is not a short term process. The financial media rely on market experts for the ‘hot take’, clicks, and ratings, but the rest of us should focus on the long term. Identify goals, assign degrees of acceptable risk, and build portfolios to achieve those goals through the inevitable ups-and-downs of the market cycle. Know what others are saying, but do not place undue emphasis on the near term outlook.
This is Security National Bank’s long-standing practice. It has served clients well for decades, and we are confident it will continue to do so. Talk to an Advisor and Investment Manager today to understand how we implement this philosophy to protect and grow your wealth over time.