Forbes’ Value of Forecasting
We were honored to again contribute to a Forbes article, amongst some top investment advisers, entitled: “How Ignoring Stock Market Forecasts Will Make You A Better Investor.” We were asked to talk about why investors are better off not paying attention to stock market forecasts.
President, Daniel Beckerman, CFP®, ChFC® discussed why he gives little importance to stock market forecasting. Forecasters’ predictions may be no better than a coin flip in terms of accuracy and there is little evidence to show that it is a worthwhile practice over the long term. The reason is that there are too many variables in finance to predict the future accurately. Also, there can be things that come out of the left field (wars, breakthrough technologies, or acts of terrorism) which may change the course of financial markets. Moreover, evidence suggests that many analysts who come up with these forecasts may have conflicts of interest. This is why stock market predictions are often better left ignored.
A few other reasons mentioned in the article include:
- It is more important to plan for what you need, and then build a portfolio to suit your needs.
For people who have a fundamental approach as opposed to a macro view on the market, forecasting is worthless because there are many factors that go into it and unless each decision is right every time, the forecast is wrong. So rather than paying attention to forecasts, investors should have a financial plan and build a portfolio around that plan.
- Remember Eastern Airlines, Standard Oil, and Paine Webber?
Put more emphasis on portfolio design and own low-cost index funds, asset class funds or ETFs and let the market be your friend. Take a strategic approach because in the long run that will be more beneficial than market forecasting because the future price is unknown and uncertain as seen in the cases of Eastern Airlines, Standard Oil, and Paine Webber. These are companies that no longer exist in their original form but people thought they would be around forever.
- Stock market forecasting is usually worthless.
The myth of forecasting is supported by trillion dollar companies on Wall Street. Putting time into things we can control, like diversification and discipline is more useful than predicting the future which may not pay off.