Now that summer is over, the kids are back in school and 2018 is looming on the horizon, I am starting to hear questions about what the next year will bring in the world of finance. Clients, friends and family all get frustrated with me when I make vague predictions about what the markets and the economy will do over the next 12-16 months. For example, will the stock market go up or down in the next year? My answer is yes… Will the economy do well or poorly? Both!
Because no matter how highly trained and knowledgeable an investment professional is, if they make predictions long enough they will inevitably get a few right, but most will be horribly wrong.
The following is a very short list of predictions that I have compiled from Financial Advisor Magazine made by supposed “experts” that were so far off base that it would be laughable if investors had not taken them seriously and acted on their advice.
In December 1999, SmartMoney magazine, in its year-end predictions, named a number of dot-com stocks as sure winners for the future, and among their picks was AOL. This was right before the dot-com bubble burst, and enthusiasm was high on anything high tech. In 2000, AOL entered into a disastrous merger with Time Warner and subsequently lost 70 percent of its stock value.
Many investors got wiped out with Enron stock, especially after Fortune magazine voted Enron “America’s Most Innovative Company” for six consecutive years from 1996 to 2001. The final year, Enron succumbed to one of the largest corporate scandals in history. The stock tumbled from $90 a share on Aug. 23, 2000, to 6.2 cents on Dec. 31, 2001, in a span of just 16 months. As late as September 2001, 16 analysts had buy ratings on Enron with no sell ratings at all.
On Nov. 12, 2012, Jim Cramer, the host of Mad Money on CNBC, urged his audience to get out of Hewlett-Packard, based on his dim view of its corporate culture and other perceived issues. So what happened? In six months, HP shot up about 100 percent. Further, on March 11, 2008, Cramer responded positively to a viewer’s concern over Bear Stearns’ liquidity problem. Three days later, Bear Stearns’ stock fell 92 percent on news of a federal bailout and $2-a-share takeover by JPMorgan.
As an economist, author and professor at Southern Methodist University in Dallas, Ravi Batra authored a 1987 book, The Great Depression of 1990 and a follow up, Surviving the Great Depression of 1990. And as we all know, they never happened.
In 2000, Washington Post columnist James Glassman and economist Kevin Hassett published the first edition of Dow 36,000 in which they predicted the Dow Jones Industrial Average would hit 36,000 within a few years. The main argument was that stocks and bonds should be treated as equally risky — and that when the market woke up and realized that, stock prices would soar. A year earlier, journalist and investment strategist Charles W. Kadlec predicted the Dow Jones Industrial Average would hit 100,000 by 2020. That was before the dot-com bubble burst and the Great Recession happened. Although it is still more than two years away and the markets are hitting record highs, it is unlikely to happen.
In 2004, hedge fund manager Whitney Tilson predicted Google would be “disappointing” to investors, according to CNBC. Between 2004 and 2013, Google’s stock price skyrocketed by more than 900 percent.
Even though the most devastating stock market crash in American history happened almost a century ago, urban legends of investors leaping out of windows to their deaths still resonate, GoBankingRates.com says. It all began on Oct. 24, 1929, as the market lost 11 percent of its value. Just seven days before, economist Irving Fisher had said stock prices had reached a permanently high plateau and that they would go even higher within a few months.
So the lesson to be learned here is to avoid treating what the “experts” say as unquestioned fact. Do not get caught up in what former Federal Reserve chairman Alan Greenspan described as irrational exuberance. In other words don’t get caught up in the hype. The most successful stock investor on the planet, Warren Buffet has predicted that the Dow Industrial Average will hit 1 million by the year 2100. Could this happen? Theoretically yes. Could the Dow drop to zero? Theoretically, yes. Am I contradicting myself? I don’t think so. Although I feel I have some pretty strong credentials in the brokerage industry, I would never call myself an “expert” when it comes to making predictions. My advice is as it has always been—begin saving early in life, diversify, buy quality, hold for the long term, reinvest all dividends and interest. That way you have the best shot at financial success without having to rely on predictions.
If you have any questions about this article or if I can be of assistance to you with your investment portfolio please feel free to call me at 480-296-9556.
Financial Advisor, RJFS
4111 E. Valley Auto Dr. #104
Mesa, Arizona 85206
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