Why you should ignore predictions
AFTER reaching new all-time highs in September, the Standard & Poor’s 500 Index (S&P 500) lost nearly 13.5 percent in the fourth quarter of 2018, while MSCI World ex-USA declined by 11.4 percent.
Equity markets have recovered somewhat from their December lows – the S&P 500 came within a hair’s breadth of official bear market territory (-20 percent) on December 24, before rallying 5 percent in the following trading session, the largest one-day gain since March 2009.
This is according to David Nathanson, a portfolio manager at Bellwood Capital – a specialist global equity investment manager – who reflects that 2018 was one of the rare years in which none of the major asset classes generated returns for investors.
This rarity, Nathanson said, had many investors asking; “‘So where to from here?’ ‘Have we bottomed’? But at the end of the day, the real answers to these questions are unknowable. Market movements like these are inevitable, but unpredictable,” he said.
Despite this inherent unpredictability, Nathanson said this time of year was always marked by an influx of predictions and forecasts for where the market was headed next, which sectors were likely to do best, which stock picks would do well in 2019, and so on.
“Ignore them,” he said, pointing out that 85 percent of the major investment banks expected the S&P 500 to end 2018 higher, with the lowest price target still 5.7 percent higher than the final outcome.
“Allowing short-term forecasts to influence your long-term financial planning is a sure way to destroy wealth,” argued Nathanson, who is a firm believer that – despite their popularity – short-term predictions don’t work.
He challenged investors to ignore the noise and use the new year as an opportunity to “reassess your financial plan and make sure you’re well-positioned for the long term”. “In our view, the best approach will always be to invest in a global portfolio of good businesses at good prices, ignore the noise and the unpredictable swings of the market, and allow the effect of compounding to do its work as the years roll on.”