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Guesswork and predictions - active investing

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Guesswork and predictions - active investing

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As Yogi Berra once put it “It’s tough to make predictions, especially about the future”.

At the start of 2016 the financial media began the annual round of crystal ball gazing. The media has been full of so-called experts and their predictions for where the ‘market’ will be at the end of the year (for prediction read guess).

Frankly in these days of online access to historical news stories I’m not sure why any rational economist would wish to go public with their views.

A quick Google search throws up a multitude of predictions from previous years and they make painful reading for most of the ‘wise’ men and woman who put their reputations on the line. Of course what happens in reality is that we forget the wrong ones, but they only have to be randomly lucky once to become media ‘prophets’.

For example, this report issued at the beginning of 2015 contained a number of predictions that the FTSE 100 Index would reach all time high of 7700 by the year end. Remember, these predictions were made by very experienced, educated, and usually extraordinarily well paid experts.

As you may be aware, the FTSE had a flat year in 2015 ending pretty much where it started at 6242. So much for the experts – not even close. A bit like a long-range weather forecast, there is no responsibility or accountability when it goes badly wrong.

This message is repeated and played out at the beginning of each year and rarely, if ever are the predictions accurate. Indeed it would seem that if they are ever remotely close, it’s probably more by luck than skill – a stopped clock shows the right time twice a day. Think of a number between 5,000 and 8,000 and then write it in your diary. In late December 2016 have a look at it again. Did you beat the experts?

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With thanks to Carl Richards.

In our humble opinion, the only truthful forecast is to say, “I don’t know” and then prepare yourself for every possible eventuality. Like the eternal optimist who carries an umbrella.

That is the approach we take with your portfolio – we don’t know for sure if investment markets will have a great year or a terrible year, and neither does anyone else – not even Warren Buffet or the Governor of the Bank of England.

So what we do is to ‘stormproof’ the investments we manage for you using a very thorough process of diversification. In simple terms we will never put all of your eggs in one basket.

Not only that, but your portfolio has been designed for you by people who know you and your circumstances well – us. The future aspirations for what life your invested wealth will give you and your family can never be qualified by a remote market indicator like the stock market.  That’s not something any newspaper, website or smart economist can say.

Investment markets around the world have begun the year poorly – will that continue? Will they recover quickly? Who will win Wimbledon this year? Nobody knows the answer to any of those questions and we are happy to say We Don’t Know. At these times I am often reminded of the famous economist and thinker, John Kenneth Galbraith who once said;

“The only function of economic forecasting is to make astrology look respectable.”

If you have any thoughts or concerns in relation to your investments and the current market volatility, do get in touch for a chat, we would be pleased to speak with you.

Meantime, ignore the media and their market predictions, the TV experts and financial gurus. Spend your time in more rewarding pursuits in the knowledge that we are keeping a very close watching brief and have things firmly under control.

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