Don’t let gloomy forecasts cloud your investment plans
‘January, you start the year off fine’
– Neil Sedaka
‘Fear is an emotion not a stockmarket indicator’
– Coreen T Sol
‘The only function of economic forecasting is to make astrology look respectable’
J K Galbraith
My ageing memory had it that JK hadn’t linked economic forecasting to astrology but instead had compared it to the awful weather predictions we laugh at. Old enough to remember Michael Fish’s classic faux pas in October 1987?
In case you’ve forgotten this is what the “famous” weather forecaster said on telly… “Earlier today apparently a woman rang the BBC and said she’d heard a hurricane was on the way. Well I can assure people watching, don’t worry – there isn’t.” Hours later on the 16 October the greatest storm in three centuries battered southern Britain destroying 15 million trees and causing over £2 billion in damage. The knock-on effect on the UK stockmarket was as every bit as destructive. On Monday 19 October the FTSE 100 fell 10.8%, and followed on the next day with a further 12.2% battering. Still a two-day record all these years later.
Most forecasting recently isn’t any better. Take the bad weather of the 2010/2011 winters. Snow and ice made travelling a nightmare in these parts and when it was widely predicted another severe white-out was on the cards for the following winter, like so many others, I joined the herd rushing to buy a second-hand 4×4. At inflated prices.
Big mistake. After ignoring Warren Buffett’s advice about “only buying when others are panic selling” I drove in it the next day to my local garden centre. And asked the wise owner what he thought of the impending winter. “Oh” he said “I reckon it’ll be pretty mild ”. “How come” I asked? “Because we’ve already run out of snow shovels and people are buying 4x4s like hot cakes”. Spot on.
Last November we got the annual prediction of an imminent “Beast from the East”. Didn’t happen yet again, but at least I’ve still got my snow shovel and 4×4 just in case. A week ago it was predicted by Friday it would be minus 6C locally. Turned out it was slightly out at plus 7C. Now they say that another Beast’s due. Don’t bank on it.
Investors in December should’ve paid attention to what Coreen and JK said about irrational fears and economic forecasting. Panic and pessimism don’t make good bedfellows. In the weeks approaching Christmas, as fingers crossed optimists hoped for a Santa rally stockmarkets continued to defy the season of good cheer. On Christmas Eve spoilsports on telly told us we’d just had the worst-ever one day fall in the Dow Jones. Their idea of a Merry Christmas I suppose.
I often wonder where these folks learned arithmetic. A 1000 point fall doesn’t look too clever but compared to a Dow of around 25,000 it came to 4%. Buttons ! Remember the 19 October 1987 storms? The Dow fell 22.6% in one day. Can you imagine that today? The equivalent of 5500 points.
So as a consequence of this hyperbole, here and in the US, stockmarket investors panicked. Irrational fears sparked the biggest dumping of shares since January three years ago. And what happened next? On Christmas Eve we saw the biggest one day points in 30 years. Despite the worries piled on us about Brexit, US government shutdowns, China’s slowdown, tariffs and climate change those of us who just stuck our fingers in our ears and sang “La,La,La” have done very nicely thank you very much.
Some growth funds have bounced between 6% and 10% since. It’s never a good idea to listen to a pessimistic consensus. In early 2016, for whatever reason lost in the mists of only three years, thousands of lemming investors dumped their equity funds. In the UK the biggest benefactors were Absolute Return Funds. The five biggest swelled to a collective £46 billion. One alone attracted £27bn. Their performance has been dire. Adding in all the various charges over the three years investors have lost big money. Meanwhile those who ignored the “End is Nigh” brigade, and continued taking the long view have done very nicely thank you very much. .
So what are my predictions for investors for 2019?
The FTSE 100 Index will rise some days and fall other days. Each move, despite the complexity of the global economy will be down to one only factor. Regularly the Index will not change at all for two days in a row, probably coinciding with weekends. Now and then it will not change for three days when we have Bank Holidays.
Property prices will rise and fall like stockmarkets, when we least expect it.
The UK and US Governments will continue to make mistakes and as a result of each one, stockmarkets and currency prices will do the exact opposite from what “experts” expect.