As 2011 draws to a close, many media outlets will give in to the temptation to assemble a group of financial/economic analysts to make their predictions for the coming year. In a USA Today article from December of 2010, a roundtable of experts predicted double-digit gains for 2011. Expert is obviously a relative term, but this group included some heavy-hitters in the industry like David Bianco, chief equity strategist of Bank of America/Merrill Lynch, Bob Doll, chief equity strategist of Black Rock, and Abby Joseph Cohen, senior investment strategist and president of Goldman Sachs’ Global Markets Institute, among others. Their predictions for 2011? All of them (minus Bob Doll at +9.1%) predicted double-digit gains for the market.
As of December 1, 2011 the S&P 500 is about even for the year.
Of course, it’s easy to look back now and say they were foolishly optimistic, that Europe was still facing huge debt, unemployment at home was still terrible etc. etc. The funny thing is at the end of 2008, one of the worst years for the stock market since the Depression, analysts predicted slow, if any growth for 2009.
The S&P finished up 28% for 2009.
The lesson from this is fairly clear: If the best and brightest in the industry have no idea what is going to happen next, then pretty much nobody else does either. That doesn’t mean we should all throw up our hands and throw our money under the mattress though. It means if we’re investing for the long-term, we need to stay invested for the long-term because quite frankly, nobody knows what’s going to happen next in the market, down OR up.
In presentations to clients, one of my favorite slides shows the value of an account invested in just the S&P 500 Index starting in 1970 through the end of 2009. Missing just the 10 best days over that 40 year period reduces the return of the portfolio by half. The thing is, nobody knows when those best days are going to occur (the same goes for the really crummy ones, too), and therefore we have to stay invested if we hope to see the best long-term performance.
So when those predictions for 2012 (Mayan ones aside), start grabbing headlines this month, be sure to take them with at least a few grains of salt. Chances are you’d have just as much luck predicting the future as any so-called expert.
Disclosure: Michael T. Ceaser is a Registered Principal offering securities and investment advisory services through Multi-Financial Securities Corporation, member FINRA/SIPC.
tIndividuals cannot invest directly into indexes.
Any information should be regarded as informational only and not interpreted as official or legal financial positions.
