As our clients know, in regards to the markets, I am fond of saying, “I don’t know the future, but I’m sure they will go up and down.” That statement does not exactly inspire confidence in our investment abilities. However, the good news is that I do not need to know the future in order to craft a successful investment strategy that will help our clients reach their goals. I have always struggled with how to answer the question, “What is the outlook for the market?”, but below is an article by Barry Ritholtz that I think answers this question in a very effective manner.
Jon Houk, CFP®
Let’s start out with a basic question: What’s your outlook on the markets and the economy?
Let me begin with an answer you will hate: My opinion as to the future state of the economy or where the market might be going will be of no value to your readers. Indeed, as my blog readers will tell you, I doubt anyone’s perspectives on these issues are of any value whatsoever.
Here’s why: First, we have learned that you Humans are not very good at making these sorts of predictions about the future. The data overwhelmingly shows that you are, as a species, quite awful at it.
Second, given the plethora of conflicting conjectures in the financial firmament, how can any reader determine which author to believe and which to ignore? You can find an opinion to confirm any prior view, which is a typical way many investors make erroneous decisions. (Hey, that agrees with my perspective, I’ll read THAT!)
And third, relevant to the above, studies have shown that the most confident, specific and detailed forecasts about the future are: a) most likely to be believed by readers and TV viewers; and b) least likely to be correct. (So you have that going for you, which is nice.)
Last, across the spectrum of possible opinions, forecasts and outlooks, someone is going to be correct—how can you ever tell if it was the result of repeatable skill or merely random chance?
That said, I would much rather look at the present state of the markets/economy than guess about the future. Most people have no idea what happened yesterday—how on earth can they tell you what is going to happen tomorrow?
I think it is of much greater value to be able to put the current situation into broader context, via a variety of variables and factors, than make guesses about the future.
We are currently in a post-credit crisis recovery. History shows us these last about 10 years, and typically produce weak GDP gains and slow job creation.
Monetary policy in general can help with liquidity—reducing the odds of another credit freeze up—but can only do so much to improve the employment situation and GDP. To move the needle on that requires a fiscal response, one that is unlikely to occur given the dysfunctions of Washington, D.C.