As we gear up for another year of thrills and spills on the share market, it’s hard to avoid the blitz of market forecasts that are so reliably issued at this time of year.
While it’s often interesting to hear what some people expect, you’d be wise to not take them too seriously. To put it bluntly, if your investment strategy rests on a 12 month outlook, you’re doing it wrong. Moreover, these forecasts are almost always laughable in hindsight (and when they’re not, it’s usually more a case of luck than prescience).
Here’s the 2022 call from JP Morgan:
Goldman Sachs was likewise bullish on last year’s prospects:
John Kenneth Galbraith really did nail it when he said “There are two kinds of forecasters: those who don’t know, and those who don’t know they don’t know.”
The point isn’t to try and embarrass these pundits (they do a good enough job of that themselves), but to point out that if some of the best resourced, best educated and most experienced practitioners so often get it wrong, we should, at the very least, be extremely humble in our own near term expectations.
Still, the uncomfortable truth is that investing demands us to make at least some forecasts. The trick is knowing what’s worth trying to predict in the first place.
Near term share price forecasts? Useless, and largely unimportant in the grand scheme of things
Long-term earnings trajectories, on the other hand, are a far more sensible thing to try and anticipate. Especially when you’re dealing with a business that has genuine sales momentum, some competitive advantages and a history of prudent capital management.
Not to say that’s easy, but it’s about being generally right, as opposed to specifically wrong.
And, if and when it becomes clear your expectations were substantively wrong — as they often will be — you want to be honest enough to admit the error and act accordingly. Hubris, ego and hope can easily make things a lot worse.
Whatever 2023 may bring, you can at least be sure of the following:
Share prices will fluctuate. Volatility is a constant.
Most of what ‘experts’ say about markets will be wrong.
There will ALWAYS be opportunities, even in the most dire of circumstances.
And, of course, you can count on the Strawman community to help you navigate through the chaos of the market.
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