The start of the year brings a flurry of predictions with sage outlooks for the coming year from the talking heads of television and the prognosticators of print. While crystal ball gazing is always entertaining, it becomes even more so a year later.
Many people are on vacations, and the flow of news slows to a crawl. Forecasts about the economy, markets and anything else you can think of (often pointless) fill the empty journalistic space.
A year ago, we suffered through brinksmanship as politicians in Washington, D.C. struggled with their now familiar “fiscal cliff” standoffs. For some, the excitement was just too much. The publication Financial News told its readers that “political storm clouds loom over the global economy. From Washington to Beijing, the financial markets are in thrall to seismic political events.”
In The Economist magazine, the tone about 2013’s prospects was equally skeptical, if not quite as florid. The magazine noted that while surveys showed investors were optimistic, the coming year was unlikely to be one to remember. The supposed reason was that the past year’s gains partly reflected relief that the worst fears about the eurozone had failed to materialize, the magazine said, which meant that reality might intervene as investors judged shares as expensive.
The skepticism was universal. The Australian Financial Review quoted analysts as saying the prospect of rising bond yields and slowing profit growth did not augur well for a repeat of the performance of risky assets seen in 2012. They predicted no end to the volatility that had gripped markets over the New Year period, posing dilemmas for investors wondering how to invest in 2013.
It’s easier to see from all this forecasting that many investors might have taken fright at the developments around the turn of the year and sought to trim their exposures to risky assets because of what the media pundits were saying.
That would have been a shame because, as of the end of 2013, many global equity markets were enjoying record-breaking years. The S&P 500 total return index, for instance, was up by 32.4 percent, its biggest annual gain in more than a decade. In Japan, the total return index finished the year with an astonishing 54 percent gain, its best yearly gain since 1972. In Europe, the return broke 24 percent while the United Kingdom topped 19 percent, both of which are peak levels.
As the new year begins, there are still plenty of gloomy stories to fill the newspapers, including ongoing speculation of what happens when the U.S. Federal Reserve begins tapering its monetary stimulus program.
This isn’t to say these stories are necessarily incorrect. Most of them accurately reflect the sentiment prevailing at the time they were written and the uncertainty about the future, as expressed in prices.
But as an individual investor, there is not much you can do about that. These expectations and uncertainties are already built into the market. Investing is about what happens next. We don’t know what happens next. That’s why we diversify.
Think about this: If any of the gurus who regularly appear on financial television or in the newspaper really had a crystal-clear view of the future, why would they bother sharing it with the world?
It makes more sense to focus on what’s in your own control. In the meantime, many happy returns!
Mark Sievers, president of Epsilon Financial Group, is a certified financial planner with a master’s in business administration from the University of California, Berkeley. Contact him at firstname.lastname@example.org.