Hi Guys,
Prolific Melody Beattie wrote: “The new year stands before us like a chapter in a book, waiting to be written. We can help write that story by setting goals”.
In the investing world we can certainly set those goals, but we are powerless with regard to controlling the final outcomes. I have been investing for over 6 decades and I still do not find any consistent rhyme or any repeatable reasons why the marketplace does what it does.
An excellent visual summary of the non-predictability of both the equity and the fixed income segments is available in the market’s periodic returns tables that are often referenced in these MFO exchanges. Here is a Link to an American Century version of these illustrative tables:
https://www.americancentury.com/content/dam/americancentury/ipro/pdfs/flyer/Periodic_Table.pdfThere is no rhyme, no reason to the steep yearly reversals in these category returns. Economies don’t change that rapidly; only investor sentiments are that volatile. If you can ferret some respectable pattern from these chaotic data, than” you’re a better man than I am Gunga Din” !
Sensible market actions are mostly an illusion. Our market experts are still trying to explain the Great Depression and coupled market meltdown. Some folks place blame on the Smott-Hawley tariff tax bill; others take exception. However, we’re all very inventive at generating seemingly plausible, but mostly wrong, causes.
Some folks believe that we were just due for a market correction after a rather long run of positive outcomes. That’s a fallacy; it is more superstition than factually based. Just because a coin toss has come up heads ten times in succession doesn’t alter the base rate odds that the next toss has a
50/
50 chance of yet another head.
Historically, equities have returned positive results about 70% of the time annually. Although that didn’t happen this year, I expected that outcome and am disappointed. Next year, I expect that the positive return odds remain at the 70% likelihood.
I don’t change my portfolio construction based on forecasters. In 1933 Alfred Cowles published a paper with a questioning title, “Can Stock Market Forecasters Forecast?”. He answered in the negative. Not much has changed in the intervening decades. In that spirit, I agree with the comments submitted by MFOer vkt.
My contribution to a lessons learned list would not be new for 201
5, but it surely would be persistent: Forecasters can’t forecast.
Best Wishes for a healthy and profitable New Year.
