Every family has it’s inside jokes. We have a new one. (You may find it silly, but for us,
one innocuous line has provided a few laughs.) It started on our holiday vacation when I asked Josh (my oldest) what he wanted to do that day.)
“I don’t know, Dad, I’m not a future-teller.”
Danny and Ben joined in when I suggested we get coffee in a few minutes. “We’re not future-tellers, Dad…” (Does that mean you don’t want coffee?)
I didn’t realize you needed a crystal ball to answer these and life’s other confounding questions.
The other day Jill threw the same line at me when I gently asked about the timing of dinner that evening. I think she meant - set the table, dear. That’s how I took it anyway.
So let it be noted, there are two entities that don’t predict the future very well. My family and, apparently, most economic forecasters.
From prominent economist John Mauldin:
One might think that all our newfangled technology would make forecasting the future a little easier. I read just last week that scientists have devised electrical wires only three atoms thick. Imagine how powerful a computer chip made with that wiring will be. Yet all our computing horsepower still can’t predict worth a darn what Washington or Wall Street will do to us this year. In fact, there is convincing evidence is that every model that forecasters us is really bad at forecasting, beyond giving us a vague sense of direction.
So the models aren’t very good. This much we know; but there is something else.
It’s a business (the financial engine) and most of the information (marketing) we ingest is designed to fit you with rose-colored glasses.
From Lance Roberts, the fabulous economist at www.realinvestmentadvice.com.
"We can’t predict the future – if it was actually possible fortune tellers would all win the lottery. They don’t, we can’t, and we aren’t going to try. However, this doesn’t stop the annual parade of Wall Street analysts from pegging 12-month price targets on the S&P 500 as if there was an actual science behind what is nothing more than a “WAG.” (Wild Ass Guess)."
Late last year (December 17th's issue), Barron’s investment strategists from all the big houses (Goldman, Black Rock, etc.) issued all their predictions for 2017. Not one of these experts saw the market falling - even by just a little bit. This on the heals of a 9 year bull run and stock prices at all-time high price versus earnings (P/E) levels. (I guess it makes sense. The contrarian in this photo collage would stick out like a sore thumb.)
Part of this is because pessimism doesn’t help these companies who benefit when investors stay invested and excited about the markets. So the result is that investors stay invested and aggressive and even optimistic when they should be either 1) by taking chips off the table as I’m doing or 2) proactively managing their potential downside (or
both). See video below.
From a book I read recently about the Wall Street. (The Capitalists Lament - How Wall Street Is Fleecing You and Ruining America).
For Wall Street experts, optimism is simply more profitable. As a prognosticator, If you’re right, you’re heaped with adulation. Being wrong (but optimistic) begets acceptance. Unfortunately, it’s far worse on the other side. Being realistic and wrong gets you fired.
So take all the predictions with a grain of salt. Congress and the incoming administration have ambitious plans and lots of obstacles. A lot of what was promised will be hard to produce; much of it having to do with job creation. This weekend I read that we lose 4 times as many jobs to automation than we do to companies off shoring those positions. So the answer is going to be more challenging than threatening every company that contemplates a move to Mexico or other locales.
Stay invested but manage your downside risk. The bane of your investing existence isn’t missing out on great years in the stock market, it’s suffering, then slowly recovering from the bad years.
That’s just the way it works!
What do I say “That’s just the way it works”?
You may notice as you read my posts that I end many with the phrase “That’s just the way it works!” I chose these words because I want to emphasize that the principles covered are conceptually straightforward and are extremely effective when put into practice. In this case, it’s hard to argue with the logic of managing your downside risk! Unfortunately, however, simple but meaningful concepts are often lost in the shuffle of our other thoughts when we find ourselves in a situation in which we want to take our financial performance to the next level. I guess that ending each post in this manner is also my way of getting in the last word! That’s just the way it works!
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Information provided is not intended as tax or legal advice, and should not be relied on as such. You are encouraged to seek tax or legal advice from an independent professional