Every December we get inundated with forecasts for the coming year. These forecasts range from expected GDP and interest rates, to stock market performance.
We are naturally attracted to forecasts because they purport to tell us what is going to happen, and they are often supported by persuasive reasoning and statistical analysis. We may be inclined to make changes to our investment strategies in line with that forecast, especially if it is one, we hope will come to pass. But there lies the mental deception. While forecasts seem to reduce future uncertainty, it is only an illusion because the markets are simply unpredictable.
Generally, over the past 20 years, economists and market strategists have not made forecasts the stock market would be down the following year. Yet, we experienced six negative years within that timeframe. Conversely, experts predicted several recessions that never occurred, and have predicted a bubble for the last several years.
When it comes to forecasting the market and economy, it’s about observing historical trends. The market is impossible to predict because the future, by definition, is uncertain. Unexpected events, our responses to world events, and randomness make accurately forecasting the markets an impossible task.
Not all forecasts need be ignored, however. Our portfolio management and advisor teams read many company and industry forecasts, as part of the in-depth research we do in our investment decision-making process. Forecasts that offer a large range of potential outcomes can be helpful in setting long-term expectations. Creating a vision of what is possible in the future is much more beneficial for planning, than a specific forecast.
We look forward, every quarter, to sharing our insights and forecasts in our Biondo Perspectives market commentary. It’s important to us that our clients stay informed and feel confident in the financial guidance we give.
It’s also the season to be grateful. From everyone at Biondo Investment Advisors, we’d like to say thank you for your continued loyalty and trust in us. May your holiday be filled with joy and best wishes for a Happy New Year.
Source: ©2021 Behavioral Finance Network. Used with permission.