It is now October. That is the third quarter of 2019. By any, and all, definitions the first half of 2019 is officially over. That means all of those analysts, pundits, economists, and big Wall Street talking heads who predicted a recession or stock market downturn in the first half of 2019 are officially wrong.
They were also wrong about the first three-quarters of 2019, but that headline isn’t as catchy. 🙂
There is nothing wrong with that on the surface. Predictions of any kind are risky business. However, a great many of these same people trade on a weird blindness in the financial industry. No one keeps any real track of these predictions. As a result, if these same people go out and make the exact same prediction for next year, they get full credit in the media for “calling” the next downturn without any acknowledgement that they were wrong this year (and maybe several of the previous years.)
Investing By Predictions is Dumb
Past performance is not an indicator of future results.
This statement is mandated to show up on all kinds of investing materials by regulators. It is a hopeless cry to the masses to not invest based on flashy numbers, or bold predictions. Basically, it is a feeble attempt to keep inexperienced investors from piling into the internet funds that had huge returns in 1999, or the gold funds, or the emerging market funds, or whatever because they show up at #1 performance for the previous year on various rankings.
A similar warning would be useful for Wall Street analysts, TV analysts, and financial journalist or pundits who tout that one time they got that one call right.
How many times have you seen an ad that says something like,
“He said to buy Amazon at $6. See what stock he can’t get enough of today.”– Tons of ads just like this all over the internet.
Your first thought should not be, “Wow, I wonder what stock that is?”
Your first thought should be, “Wow. Amazon at $6 was a really long time ago. Has he made any calls since then? What were they? How well did those do?” Not only will you get silence, you won’t even be able to find them, carefully hidden as paid research that is no longer current, and therefore no longer readable. You will never see that call he made to buy the dip in April 2000, or the time when Apple was at $800 and he predicted $1,000 and beyond ($2,000?) right before it rolled over.
Think I’m exaggerating? Check out these predictions, all from the same person. I dug these up in five minutes of searching and tweeted out when this article was published. Do you think there won’t be a big “he was right” article, lots of interviews, and plenty of ads if it turns out that there is a Big Top in 2020? None of those articles, headlines, or stories will mention any of these previous calls for pretty much the same thing that were dead wrong?
Notice the November 2017 call for a “Big Top” in the first half of 2018. It didn’t happen. Now, follow the link to the recent Market Watch article where he calls for a… wait for it… “Big Top.” This time, there is no specific date, but you can infer from the article that he means in 2020.
Note how the article goes on and on about how “reliable” the indicator the analyst is using is, but not one word about how he made this same INCORRECT prediction (using the same “reliable” indicator?) just two years ago. If you had listened to him back then, how much money would have lost by missing the last two years of stock market performance?
I’ll let you do the math.
Stock Market Analysts Are Wrong as Often as They Are Right
That’s because she was spectacularly wrong, but her name was all over the news for long enough to build up a nice tidy business for herself, even if listening to her would have been a catastrophe. If there were any accountability in the finance world, every article about her today would start with, “Meredith Whitney who infamously predicted a massive municipal bond market meltdown in 2010, today released a market analysis that says…”
To be fair, Whitney DID make a call about bank stocks in 2007 that was dead on accurate. Before that, and since 2010? I don’t know. But, no one will mention it when she makes her next headline.
In fact, I bet if anyone actually bothered to track, pretty much all analysts end up being wrong, or poorly timed, as often as they are right. How great would it be to see a batting average type statistic?
If I ran the financial media universe there would be two averages. One based on all publicly available predictions and analysis, and another based upon the ones big enough to get solo headlines in major financial media outlets. Of course, when most everyone has .500 or less, that will make the predicting world so much less popular. (That is not a bad thing for investors, but it is for the world of flashy headlines.)
I always have delusions of grandeur to do something like that on this blog, but it can be pretty time consuming, and there are new predictions every day. You know the old saying, any publicity is good publicity.
What would be helpful is if financial journalists could take the time to do a simple Google search and see what the last two or three major predictions from any financial analyst or Wall Street strategist were before just rewriting the press release. But, don’t hold your breath. Financial journalism occurs mainly online these days where quickly published articles with sensational headlines are the keys to clicks. There just isn’t room for any extra effort to round out the facts.