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| Pathways Advisory Group, Inc. Jeff Karst, CFP® |
We receive many magazine subscriptions – some of which I don’t want. The ones that typically go straight to the trash are the ones with forecasting or stock-picking. As you probably know, we don’t believe that anyone can accurately predict the future or consistently buy the right stocks to beat the market. For more information on our Investment Philosophy, please click here.
I received a magazine a couple months ago that really caught my attention. The cover was devoted to an economist’s predictions about various markets. The eye-catching thing is that it was portrayed like a weather forecast. I know weather forecasting has become fairly credible but there’s still a stigma that the weatherman is wrong - a lot.
Did the editors understand the irony (at least to passive investors)? Or perhaps they just thought it was catchy? In any case, I found it amusing enough to stay tuned to see how the “weather” turned out.
There were several predictions. However, the two that I pondered about were the US and Emerging Markets. Emerging markets was on the left (the bad side) as dense fog. The US was on the right (the good side) with increasing sunshine.
At the time I received the magazine (August 30) the US markets (as measured by the S&P 500 Index) were up 14.5% from the beginning of the year. Emerging markets (as measured by iShares MSCI Emerging Markets Index) were down 14.3% for the year.
It could be coincidental that the economist’s predictions matched the recent performance but the most intriguing is what has happened since then. Emerging Markets shot up about 13% while the US is up about 10%. If you had taken his advice (and sold Emerging Markets) you would have missed out on the big upswing.
Don’t rely on predictions or (weather) forecasting. A well-diversified portfolio built on academic principles is your best umbrella.
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