Anyone familiar with The Evidence-Based Investor will know we’re highly sceptical about the value of financial market forecasts. And if the events of 2020 didn’t convince you of that point, nothing will. But every now and then, even are willing to chance our powers of prediction.
The fact is investors understandably are anxious after the year we’ve just had and are keen to know what could transpire in 2021. So we’ve put together our own list of ten forecasts you can count on coming true in the coming year.
1. Someone will declare that “it’s different this time”
This one comes up regularly, usually around a crisis. It usually goes hand-in-hand with “the old rules don’t apply” and “everything has fundamentally changed”. And, of course, every crisis IS different. But how we deal with them doesn’t have to change at all.
2. Wall Street will “climb a wall of worry”
This phrase tends to arise when there are two or three things vexing traders at once – interest rates, oil prices, geopolitical strains. What no one ever tells you is that’s just what markets do. They absorb new information into prices. So let them do the worrying for you.
3. Billions of dollars will be “wiped off” markets
This is usually the headline when indices fall 3%+ in a day. And it’s true that prices that day will be much lower than a day before. But that doesn’t matter if you’re not selling. By the way, notice how they never say during rallies that billions were “wiped onto” markets?
4. We will be told that the “easy gains have been made”
After extended gains, it becomes time to sharpen your pencil and pick stocks because you can no longer count on “the rising tide that raises all boats”. Hint on this one: If it’s a broker telling you that, and they’re mixing metaphors that badly, run a mile.
5. Someone will say “more sellers than buyers on the market today”
This usually comes up when journalists up against deadline are straining to find a narrative to hang the day’s news on. Ask yourself, if the sellers outnumbered the buyers, who were they selling to? If the trade gets made,
is buying.
6. Traders will “cast a nervous eye on key economic indicators this week”
Every week, there’s always some obscure data release that supposedly everybody is hanging on. It could be the second revision of GDP or a purchasing manager’s index. Why any of this should make a difference to people with a horizon longer than five days is never entirely clear, of course.
7. Traders will “buy the rumour and sell the news”
So you’ll be told ahead of the “pivotal number” that it’s expected to be great economic news. Sure enough, it
good news. Trouble is the market knew that and sells off. This is why paying attention to macro-economic data as an investor is mostly futile.
8. A rally will be described as “short-covering”
In other words, some in the market are bracing for bad news and expecting stocks to go lower, but are now having second thoughts and buying back borrowed securities. While this highly technical detail is quite possibly true, it is utterly irrelevant to 99% of us.
9. You’ll see a news feature on a “market guru” and his or her “fail-safe method”
This will be a puff piece on a self-promoting trader who called the last cycle entirely right after getting the 15 before that entirely wrong. Unfortunately, this plays into an innate public belief that someone out there has a crystal ball .
10. Someone will refer sniffily to the “dumb money” and the “smart money”
The “smart money” in this case usually refers to the market professionals who charge their clients big fees year after year for trying to outguess the market. The record of active managers against indices tells you how smart that is.