PREDICTIONS, PREDICTIONS

Five forecasts that might actually help you make money (or lose less) in 2017, writes Peter Hodson.

Well, here we are; 2016 is over. Most general insight websites and news bureaus are calling it one of the worst years ever, what with all the celebrity deaths and weird politics and brutal terrorist acts. But for investors — it was pretty sweet. The TSX was one of the world’s best-performing indexes, oil did not go to $0 a barrel as predicted, and metals did a huge yo-yo bounce.

Here at 5i Research we don’t care much for predictions. They are usually wrong, and we also do not like how predictions tend to encourage short-term trading and unnecessary portfolio moves. But, we too have a boss — our editor — and this is the last column for the year, so we need to give our readers what they want. Here are five fearless, and/or tongue-in-cheek market “predictions”:

MARKETS WILL TAKE A HUGE DIP SOMETIME IN 2017

The Dow Jones Index has not dropped more than 300 points since Sept. 9, as the bull run continues. We are long overdue for a correction. There might be a big earnings miss, president-elect Trump might tweet something to spook markets, or the Fed might do something unexpected. There will be a big plunge, investors will panic, the media will go into a frenzy about the end of the market, and then ... markets will return to normal, with good companies doing well and not-so-good companies doing not so well. We predict that investors who react to the short-term drop will lose money, and those that plan ahead and/or do nothing will make money, or, at least, lose less money.

GOOD COMPANIES WILL CONTINUE TO MAKE GOBS OF MONEY

You know, when a company has a competitive edge, or a new product, or a cost advantage, we really doubt if executives care too much about the stock market. Companies like Alphabet (GOOG on NASDAQ), sitting on $89 billion in cash, will keep making money, and might even prefer that the market declines for a bit, so that it can buy other companies more cheaply. Or Nvidia (NVDA on NASDAQ), the best-performing S&P 500 stock this year, likely cares far more about the continued growth of gaming, autonomous cars and artificial intelligence than the ups and downs (mostly ups, lately) of its own stock. Good companies will continue to make lots of money, despite what the market does or does not do.

INVESTORS WILL WORRY TOO MUCH IN 2017

Really, you don’t need to stress every single detail of every single investment you make. Sometimes, you are going to own a stock that goes down. This does not — repeat, does not — make it a bad company nor a bad investment. We would, in fact, be more worried about a stock that never declined, kind of like how Bernie Madoff’s fraudulent hedge fund never showed a bad month. Stocks can and will decline. You might own a stock that goes to zero, even. But, you might also own a stock that goes up, say, 500 per cent, and this will make up for lots of mistakes in your portfolio. But if you worry over every single insider trade, every chat board comment, every short-seller slam, every missed earnings report, then you are never going to be a long-term investor. The “smart money” does not stress, it invests.

THE BULL MARKET WILL CONTINUE

Notice how we did not say 2017 in this prediction, though our bet is that it probably will this year, too. With markets at record highs, mathematically speaking, all bull markets have continued. It is just a time reference. If you bought at the exact wrong time of the last “peak” in the market prior to this week, then you are still ahead. We think the pain of 2008 and 2009 is still very fresh in investors’ minds, and they are still looking for problems. There is a lot of cash awaiting the next decline. Markets are nowhere near the euphoria phase that typically signals the short-term end to a market rally. Markets can go up for years, you know, it’s just that investors forget this continually.

HIGHER INTEREST RATES ARE NOT ALWAYS BAD FOR STOCKS, OR FOR REAL ESTATE

The worry for investors is higher rates. “Housing will collapse,” they say, or “dividend stocks will get crushed,” or “corporations will suffer.” How about we spin this around, and predict that slightly higher interest rates will encourage potential homeowners to finally buy, before rates go even higher, and push up housing prices even more? Or, corporations will view higher rates as a sign of economic strength and go on a massive acquisition spree, pushing up stock valuations? Or, dividend stocks will continue to do what they have always done: increase dividends as earnings rise? The latter is the easiest call here, with companies like Fortis (FTS on TSX) more than likely to raise dividends again in 2017. It is not a difficult prediction: Fortis has raised dividends every year for close to half a century. So, while you sit back and read all the other predictions, keep some basic principles in mind: (1) If someone really did have any predictive ability, sharing it would dilute its value; (2) The market will do whatever it wants to, based on the collective moves of billions of investors, worldwide. Most can’t even predict their spouse’s actions very well, so good luck with that; (3) Market prices already reflect predictions, it’s the surprises that are what’s important; and (4) Donald Trump.