A Warning About Predictions…
Did you know that there have been eight US recessions between 1961 and 2009, inclusive?
Despite the volume of future-gazing going on in the headlines, there is no economic data or research or analysis that suggests we can look even 12 months into the future and predict recessions with any confidence. That little factoid comes from Tara Sinclair, a professor of economics at George Washington University.1
And a study into recessions around the world in 2016 revealed that, of the 62 recessions in 2008 and 2009, economists predicted not one of them.
In fact, think back to Nobel Prize winning “legendary” economist Paul Krugman who predicted on the 11th of November 2016 “a global recession (with Trump in the White House) with no end in sight.”
Oh, and returns (with reinvested dividends) over that 50-year period from 1961 to 2009 (for the S&P 500) has been over 10% per annum!2
What that means – and what the “Rule of 72” tells us – is that patient investors could have quietly doubled their money every seven years during that period.
Who’d have thunk it? (And dinnae tell the pessimists.)
More recently, the period from 2015 to end-2019 was about 13% (for the S&P 500).
So, for me, economic predictions are a bit like wealth parasites.
They lie in wait for any opportunity to devour whatever you leave unguarded, and feed on your insecurities about the future.
In fact, you could quite easily gain an exponential advantage over most expert economic predictions by simply flipping a coin.
Even the word “prediction” should give investors pause whenever it appears in the conveniences of herds, happenstance, and headlines.
The syllables tell the story: “Pre” (before). “Dict” (say or speak). “Tion” (of action).
It sounds like a warning: “Before speaking of action…”
If you found this note interesting and you want to chat about it, do get in touch.
Alan Steel, Chairman, Alan Steel Asset Management