You think you know, but you don't!
by Jay L. Gershman
December 21, 2009
As 2009 draws to a close, predictions for 2010 are the “topic of the day”. Barron’s “Outlook 2010” inspired me to respond to the plethora of clients, friends, holiday party acquaintances and world famous experts who have decided that they are capable of predicting next year’s markets. My wife says it best, every time I get ahead of myself in any particular subject matter, “you think you know, but you don’t know”! Short and sweet, as only a wife can put a husband in his place.
Over the course of the past six months as the markets have continued to climb, many people have predicted that another shoe would drop and prices would once again drop. “Better wait”. Meanwhile it hasn’t happened. When Gross Domestic Product, GDP, the measuring stick for economic growth was released for the third quarter showing a 3.5% quarterly growth, naysayer’s insisted that most of the growth was due to “cash for clunkers” and the “first time home buyers” programs. “You just wait, they insisted. “When the fourth quarter numbers arrive you’ll see the true story”. When asked what specifically makes them feel this way, the answer is “I can feel it in my bones”. Reading the Barron’s Outlook after shoveling out from another “blizzard” that fizzled made me realize the irony of the moment. Many people equate their ability to predict an on coming storm by the stiffness in their joints with their ability to feel that another market downturn is fast approaching. I’m sorry to report, but using your “gut” to effectively manage your precious money will not work any more effectively than using the Farmers Almanac to plan your daughter’s outdoor wedding. Good luck! A recent Dalbar study, using data of individual investor inflows into mutual funds reports that for the 20 year period ending 12/31/09 individual equity investors once again trailed the S & P 500 index, this 20 year period by nearly 6.5% per year. It is of no surprise, since individual investors are famous for “buying high and selling low” and outflows in 2008 and early would suggest again that investors didn’t have the patience to “ride out the storm”.
Which brings me to economists, according to Barron’s survey, the consensus view sees a modest 12% rise in the S & P 500 index next year. Aren’t those “experts” roughly the same geniuses who predicted 2008 would be a good year? I don’t think they should listen to their guts, their bones or their statistics; they should listen to my wife, “you think you know, but you don’t know”! Nothing like the truth. Happy Holidays!
The information contained herein is solely the opinion of the author and not guaranteed as to the completeness or accuracy provided. Please consult your advisors before making any investment or financial decisions.