Forecast Flaws

What a wild first half of the year! Now we have many economists and market strategists providing forecasts for the second half of the year. But, before you listen to them you may want to think about how they did the first half of the year. In March, we experienced the largest market drop in the shortest amount of time in history. 36% drop in 33 days. They didn’t forecast anything like that. But you might argue, how could anyone forecast a worldwide pandemic? Good point. They couldn’t. It wasn’t predictable.

How about the corresponding rally, the greatest 50-day rally in the history of the markets? They failed to forecast that as well. But how would they know the amount of monetary stimulus and rapid change in investor sentiment? They wouldn’t. It wasn’t predictable.

And that is the crux of all predictions. Predicting something isn’t about the experience or intelligence of the individual. It’s about whether the event is even predictable. And we know that markets can’t be accurately predicted on a consistent basis.

That’s why it is important to ignore forecasts, no matter how alluring they are. Of course, we all want to know what to expect, and in that case the best thing to do is turn off the TV and speak with us. We know what the talking heads are saying and we can provide a forecast that is free of bias and in the correct context.

The greatest tool we have to work in a field of uncertainty is your financial plan. As we discuss what the future may look like, we will refer to your plan to ensure any decisions we make are thoughtful, deliberate, and in line with your goals.

 

©2020 The Behavioral Finance Network. Used with permission.

Securities and investment advisory services offered through NEXT Financial Group, Inc. Member FINRA/SIPC. None of the named entities are affiliates of NEXT Financial Group, Inc. Neither NEXT Financial Group nor its Representatives give tax or legal advice. Reference code: 2020-2618.