Market Pulse: New Year’s forecasting | SierraSun.com
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Market Pulse: New Year’s forecasting

David Vomund

At this time of year many analysts give their predictions for the markets. They make for interesting press, and I’m sure I, too, will soon write an article with my forecast. Most (but not mine, of course) will be useless.

A year ago I bookmarked an article on CNBC.com that asked retail investors for their 2013 forecasts. The conclusion: Even though the Fed was doing everything in its power to get investors into the market, people were afraid of stocks and preferred to just hold cash. Of course, with the market up 25 percent in 2013, holding cash was the wrong way to go.

Some say that retail investors are always wrong and that professionals are more level-headed. Not so fast. Last year, the average estimated return for U.S. stocks as predicted by Wall Street forecasters was 7 percent, far short of the actual return. Even the most bullish forecaster expected the S&P 500 to rise only 14 percent.

The folly is that most analysts simply extend what happened in the recent past into the new year. For example, most analysts were gloomy late in 2008, right before the start of one of the most bullish periods ever. Now that the market is up 165 percent since then analysts are more upbeat.

Then there are those that constantly fight the market, refusing to believe that the market is right and they are wrong. The perma bears note that they called the 2008 bear market, but fail to say that they were also bearish after 2008. That’s no way to invest.

Investing is like going on a road trip — you know where you want to go, but if the road turns along the way then you must turn with it. There is nothing wrong with having a view on where the market will go, but you must be flexible and observant in your outlook. You must not merely extend the current trend as most do. Successful investors must see what others do not.

David Vomund is an Incline Village-based fee-only money manager. Information is found at http://www.ETFportfolios.net or by calling 775-832-8555. Clients hold the positions mentioned in this article. Past performance does not guarantee future results. Consult your financial adviser before purchasing any security.


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