Frank Zappa once said that most music journalism is people who can’t write, interviewing people who can’t talk, for people who can’t read. That sounds a lot like much of the financial press to me! Obviously, as with most things in life, there are exceptions and there are some very fine financial journalists doing a great job (you know who you are, keep fighting the good fight) but much of the output of the financial press is investment pornography, scaremongering and advertising dressed up as analysis.
As we near the start of a new year we typically enter the silly season for financial journalism. Over the next few weeks you will no doubt see countless pages devoted to “expert” predictions about the level of the FTSE 100 Index in a year’s time (i.e. at the end of 2013). By all means read the articles and have a good laugh (they will probably be more entertaining than some of the Xmas telly) but bear in mind most of them will be wrong; often badly wrong.
You will also see countless articles about “ten funds you must buy for 2013” or “the top investment themes every investor needs to grasp next year”. Again, most of them will be wrong.
Some of them will be right and the pundits, journalist or fund managers who made them will be proclaimed geniuses; perhaps a new investment messiah. But remember, these people make predictions all the time so by the law of averages they will get some right just by luck. As an old saying goes, “even a stopped clock tells the right time twice a day”.
A very quick search on Google reveals how difficult it is to predict stock market performance. The FTSE 100 index finished 2010 at 5,900. An article on the This Is Money website from 30th December 2011 reveals that every expert they questioned at the end of 2010 thought the FTSE would finish 2011 above 6,000 and one even suggested the FTSE would reach 6,700. The market actually closed for the year on 5,572.
In a similar article at the beginning of 2012, two leading stock brokers predicted the market would finish 2012 at 5,850 (Brewin Dolphin) and 6,100 (Killik & Co). Predictions by various IFAs suggested the FTSE could finish 2012 as low as 5,000.
The This Is Money article goes on to quote predictions from Sunday Times as follows:
We are nearing the end of 2012 and with only a few weeks to go we still don’t know where the “market” will finish so any of these predictions could turn out to be right.
Some of the names above have teams of the best economists and researchers in the world at their disposal and they still can’t agree on a figure let alone get the figure right. Which goes to show that investing based on predictions about the future, no matter how plausible they sound (or how credible the source) is a mug’s game. Instead make sure you have a long term investment plan that is aligned to your own financial needs; your personal goals and aspirations as outlined in your own financial plan. Then, simply stick to the discipline of the plan and let others worry about second guessing markets while you enjoy Christmas Dinner and re-runs of the Great Escape and the Two Ronnies on telly. You should only change your investment strategy when your goals change.