Prediction Fiction

By: Mark Weiskind
By: Mark Weiskind

No matter your political leaning, you likely didn’t expect Donald Trump to win the election last week.  Most of the “experts” (the pollsters, the pundits, the media) sure didn’t see it coming, Hillary Clinton seemed a lock.  Nor did you likely expect the stock market would rally in the days after his win.  Again, the “experts” (the Wall Street analysts, the talking heads on CNBC, even yours truly) warned that a Trump victory would likely lead to an immediate sell-off, due to the surprise and uncertainty such a win would cause.  Yet the Dow rallied over 4% in the three days after the election.  In a recent Bloomberg survey, not one of 65 Wall Street analysts predicted 10-year Treasuries would rise about 2% by year-end.  Yet the 10-Year rate now sits at nearly 2.25%.

The reality is, predicting outcomes of most anything is hard, even for the supposed experts and even if that outcome seemed to be obvious. And even if you get that prediction right (for example predicting Trump would win the election), being able to then predict how that outcome will then play out (for example the stock market will rise in the short-term if Trump wins) is even more difficult.

Despite this, much of the financial services industry continues to try to convince investors they should make investment decisions based on their “expert” predictions…predictions about market direction, interest rates, employment numbers, the Fed, the global economy, and on and on.  And the value proposition is that their expertise in making such predictions will help steer investors into the right investment decisions and products.  Even I can admit that I’ll turn on CNBC and sometimes hear some awfully compelling perspectives.

The problem is, those predictions are likely wrong more often than they are right.  If “obvious” things like the presidential election are so hard to predict, why would we think it is realistic to accurately predict multi-factored financial and investment outcomes?   That’s why at Fairway, we focus on ways to provide reliable value.  Straight out of our marketing materials, we state “We don’t want our clients’ success to depend on anyone’s near-term predictions about geopolitics, the economy, the stock market, or interest rates.  A strategy reliant on guessing and changing imposes transactions costs, taxes and a substantial added risk; the risk of being wrong repeatedly”.

So, I’m more than happy to share my opinion on what I think will happen if (insert unpredictable topic of the day).  However, we won’t make any major financial decisions based on my or anyone else’s predictions. There are much more reliable ways for your advisor to add value than trying to predict an unpredictable future.  Don’t let the “experts” tell you otherwise.