Investor Points of Few – Isn’t It Ironic (Don’t you think?)

By Alan Steel

The more things change the more they stay the same, eh?

Let me give you an example.

I wrote the following comments in August 2005 (over 12 years ago) and, with a bit of tweaking, they could easily be written into most any financial news article today.

“Two weeks ago experts said stock market investments weren’t a good idea as share based ISA sales hit a record low (sound familiar?). At the same time apparently in the US more investors sold mutual funds than bought. The other day it was reported World economic growth would fall because oil’s running out (now economic growth is scuppered because there’s too much of the stuff). And last December experts predicted the US Dollar would continue to weaken against Sterling – it was $1.95 at the time! (the dollar value is about a third lower now but they’re still saying exactly the same thing).”

And then, in a slightly ironic twist I wrote the following:

“Something tells me we’ve been here before. About 12 years ago it was Personal Equity Plans (the forerunners of ISAs) that hit record lows – just before World stock markets took off. 25 years ago experts, including those advising President Jimmy Carter, said oil was running out. Actually some experts then suggested oil was heading to $580 a barrel!”

Same Old, Same Old

So why is it that so-called experts keep predicting these things in the same old way?

All they seem to do is take a ruler, lay it on a recent economic trend graph and extend in the same direction, up or down.

In real life straight line projections don’t work.

Anybody remember the predictions about Japan’s economic dominance continuing after the 1980s? Remember when the UK was the sick man of Europe with no sign of getting better?

How many experts actually get it right?

Ned Davis’s findings are eye opening on this subject.

In his work The Triumph of Contrarian Investing published in 2004, he reported findings from the year 2000, of 60 high profile US experts who made predictions for the Dow Jones Index, Nasdaq, S&P 500, and 10 year US Treasury Yields.

In every case their predictions were well off the mark – too high, or too low.

Guess what? You’re still better off flipping a coin than taking the advice of celebrity commentators who, for time immemorial, have been telling us that the sky is falling.

Folks, even the US Federal Reserve, who is apparently in charge of the US economy, remains below 30% accurate when predicting future US interest rates.

The more things change, the more they stay the same.

So, maybe a change of approach is long overdue – maybe get a bit of good advice from someone with a good long term track record.

Either that, or we’ll see you right here in twelve years time, wondering why things still aren’t moving the direction that you want them to.

Alan Steel, Chairman, Alan Steel Asset Management

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