Forecasters aka Analysts
On December 31, 2021, Forbes published a post headlined “Analysts are forecasting the S&P 500 to rise 9.6% in 2022. The first line reads, “The S&P 500 Index turned in another very strong year increasing 26.9% when stock market forecasters had expected a more muted gain of 7.7%”
This means, the forecasters were wrong in 2021 (as they have been time and again).
What about 2022?
We know how this one turned out. US stocks were down 20% in their worst performance since 2008.
Once again, these forecasters were wrong… not by a percentage point here or there…these folks were massively wrong.
The truth was, is and will be that no one knew, knows and will know a thing about the future. No one can predict the future. Period!
But does this stop these analysts or experts from forecasting. Nope. Even with such a dismal track record, they continue confidently. Because people crave for it. Human behaviour rather demands it. Also, we never receive or have access to a forecaster’s terrible report card – showing all forecasts that have gone wrong by a mile. The truth is this person knows nothing more about the future than any other person. But we don’t seem to care.
Therefore, this circus continues.
The 2023 prediction for S&P 500 was one of gloom and doom. The analysts predicted mayhem. And guess what? The S&P 500’s closing price as of yesterday is 4409.59, a new 52 week high.
But these forecasters pay no heed to their poor forecasts about the stock market, economies, and companies. Despite getting 100 out of 100 forecasts wrong, these guys don’t pause or stop…They forecast the next thing. They keep creating new stories and believable narratives. And the financial media is always eager to publish such bullshit/catastrophism. So, it didn’t come as a surprise when I saw these 2 headlines in my inbox – XXX Bank sees Big US Stock Rally followed by big collapse and Why DDD Bank says an Economic Downturn is 100% inevitable.
Both these posts are perfect examples of clickbait journalism. The purpose of such posts – to attract more eyeballs and thus advertising more revenue. These posts have nothing to do with your financial well-being. They also have nothing to do with your financial literacy either. And the people who publish such posts know Professor Diedre McCloskey’s words too well – “For some reason, people want to believe the world is going to hell.”
There is a wise Warren Buffett quote that comes to mind – ‘Forecasts may tell you a great deal about the forecaster; they tell you nothing about the future.’ This means that forecasts tell us more about the forecaster than of the forecast. And what do they tell us about these forecasters?
Mary Buffett and David Clark in their book “The Tao of Warren Buffett” provide a simple answer. They wrote, “What most people forget is that most forecasters have an agenda that reflects the interests of the people who are paying their salary- if they are paid to be pessimistic, they will be pessimistic; if optimism is needed, then it is optimism. People are what they are being paid to be – no more, no less. Forecasters don’t have a crystal ball that they can see into the future with, but they do have mortgages that need servicing and children who need to go to college.
Wall Street likes to see a lot of trading activity, and that means it needs reasons to make a lot of changes to your investment portfolio. If the forecaster says interest rates are going up, you sell your stocks; if he says rates are going down, you buy stocks. They do the same with individual stocks- predict lower earnings this quarter and you are selling out, predict higher earnings this quarter and you are buying in. Wall Street makes money off your investment activity of moving your money from one investment to another, so, naturally, forecasters also known as analysts, are going to find lots of reasons for you to do just that, move from one investment to another. The problem is that all this activity has got nothing to do with making you rich.”
The firms these analysts and forecasters work for want you to focus on days instead of decades. They want you to move your money from one place to another. The faster the better. And the best way to achieve this feat – to hire intelligent people (who can speak and write well) and get them to publish volumes after volumes of stuff called research. They would starve if you buy and hold or if you buy and sit tight.
But you get to decide what to focus on.
You. Get. To. Decide. What. To. Focus. On.
Because when it comes to investing, you always have a choice.
a. You can focus on these forecasts or ignore them.
b. You can focus on days or decades.
c. You can focus on the stock markets, stocks, mutual funds, benchmarks, or you can focus on your financial life, goals, planning, and the power of compounding.
If you focus on the first choice in each of these above options, you are signing up to make your life miserable. And for no good reason. There’s actually no benefit. I know you can handle pain that leads to gain, but this is just pain that leads to pain.