It’s peak season. No, I don’t mean shredding fresh powder in the Rockies over President’s Day weekend. I’m talking about the annual tradition of forecasting the markets.
The first few weeks of every New Year sees market pundits and talking heads start to lay out their predictions for the year. So it’s fair to say nearly every Wall Street strategist has turned in his/her predictions for 2017 by now. A few concepts come to mind that might help explain why this ritual takes place.
- It’s their job. Some of these people spend a substantial amount of time trying to predict market moves, with the intention of beating the market or selling their insights to clients.
- Intellectually intriguing. A good portion of these people are intelligent, highly educated, and involved in managing money to a certain degree. They too have an itch to scratch and are vying for bragging rights.
- For humans in general, uncertainty is bothersome. It forces us to acknowledge just how little we actually understand about the world around us and how little we can control. This applies to investing because we want to know what’s going to happen and what our accounts are going to be worth next Dec 31st.
We too have fallen prey to the dark art of forecasting every now and again. The truth is, our clients want know what’s going to happen, where the economy is headed, where stocks are going, etc. So without hesitation, we give them our best guess.
If you’ve made it this far down the page, you’re likely wondering where I’m going with this. Well…
One thing we pride ourselves on at P&A is transparency. We’re straight shooters, tell-it-like-it-is type of people. And the truth is nobody knows where the S&P 500 will be at the end of the year — or how it’s getting there. No one. Not Warren Buffett, not the CEO of a Wall Street bank, not the talking heads on your favorite business channel, or a Ph.D. student at Stanford. And especially not me.
Here’s what I do know about stocks… It’s a bit more reasonable to predict their flight path over the next 10-20 years, where stocks have been positive 96% and 100% of the time respectively, over the last 60 years. In fact, the largest decline in the market over a 10 year period was 3% annualized, while the largest gain over a 10 year period was 19% annualized. We like that relationship.
Every year has its ups and downs, which you should always expect. Stocks are highly liquid and one of the best return-generating assets, above and beyond inflation. Long-term is the only time period that matters. Patience and discipline will outlast intuition.