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Unpredictability in the Market?  Here is the Best Strategy Thumbnail

Unpredictability in the Market? Here is the Best Strategy

“Prediction is difficult, especially about the future.”

-Physicist Niels Bohr

We have referenced the above quote at least a dozen times over the past six years.  No apologies for that!  It is succinct and brilliant, and too often ignored.  This quote is especially relevant when reviewing the predictions about the market in 2021 made by economists and Wall Street analysts a year ago.  As the market closed for 2021, the S&P 500 was up about 25%.  This is on top of a 15% rise in 2020 and another 25% in 2019.  Needless to say, not one of the several dozen “expert” prognosticators I checked came close to forecasting this.  Their collective record in forecasting the equity market and interest rates over the past decade has been abysmal – they make your average TV weather person look downright psychic!

This trend of unpredictability goes far beyond economic data and markets.  At the World’s Fair in New York in 1964, they predicted picture phones in our homes, but not cell phones; super mainframe computers, but not PCs or the internet; flying cars, but not electric cars; CRT screens, but not flat screen TVs, and on and on.  It is interesting to go back and review the exhibits of the 1939 New York World’s Fair.   Dubbed “Futurama”, it laid out a vision of life 20 years later.  Again, 1959 (or even 1999) didn’t look anything like they projected – and they missed a little thing called the Second World War.

 In almost any year, and certainly in every decade, there are a multitude of events that that were not foreseen, and even beyond unforeseen, would have been considered unthinkable before they happened.  Just consider this short list from the last 60 years or so (you can probably supply the exact years from memory):  the assassinations of JFK, Martin Luther King Jr., and RFK; the resignation of a Vice-President and a President of the United States; a 20-fold increase in the price of oil in six years; 30-year mortgage rates in excess   of 18%; the collapse of the Soviet Union; September 11, 2001; the Southeast Asia tsunami that claimed 225k lives; and, of course, COVID-19.  You can add many more, I’m sure.

There is an important lesson for investors here.   Investing success is not about economic forecasts or market timing, it is about staying fully invested and well-diversified, both within and across asset classes, with a bias towards equities, but also being careful to have needed liquidity over your investment horizon.   At this time of year it is easy to get worried and/or side-tracked as economists and Wall Streeters tout their forecasts in the financial press and on all the business cable channels, with the Chicken Littles of the lot often getting the most airtime.  They are paid to be wrong – and will be!  Thinking about what the world will be like in 2022 or 2032 might be a fun parlor game, but your investment strategy shouldn’t be based on such ruminations.  Happy New Year and may the investment winds be at your back in 2022!

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