It’s that time of year again! No, not the holidays – stock market prediction time! The 2018 predictions are starting to roll in and the results look great: economists at some of the largest asset managers are expecting gains of about 7 to 10 percent in the US markets next year. This may sound good to you, but (for better or worse) the odds of this outcome are slim. Why? These asset managers (managing trillions) would already have their clients positioned for such an outcome and therefore, this outcome is “priced in” to the stock market already. Because this outcome is “priced in”, Mr. Market should give us an outcome very different from up 7 to 10 percent in 2018.
Most people think that being a “contrarian” investor means doing the opposite of what everyone else is doing. In this case that would mean betting on the stock market to fall, right? Maybe. Maybe not. Let’s take a look at the other possible outcomes. The first thing that comes to mind is a big down year – maybe down 10% to 20%, or more. This is certainly possible. But what about a big up year? Maybe another 20% or 30% up year like 2017 is in the cards – you don’t read about too many people predicting those returns. Or what about a “flat” year with lots of volatility but with little price gain or loss? This is also very possible but not that “sexy” to predict. Up big, down a little, down big and flat are all “contrarian” 2018 predictions in my mind.
The great thing about these annual predictions is they give the unbiased observer an idea of which outcome is least probable. Once you cross that option off of your list, it frees up your mind to consider the other (more likely, in my opinion) possibilities. Then you are able to mentally “test” your portfolio against those other possibilities. As an aside, what I find most fascinating about this whole exercise is that these massive asset managers have not figured out that predicting an entire year of geopolitical/economic events AND the stock market’s reaction to said events is IMPOSSIBLE – but it’s fun to try I guess.
*The above article is informational in nature only and is not a recommendation to buy or sell securities. All information is gathered from sources believed to be reliable, but neither Charles Brown nor Ausdal Financial Partners, Inc guarantees the accuracy of the information. All investments carry a degree of risk. Individuals should consult with their tax and investment professionals before making changes to their investment portfolios.
*Securities and Investment Advisory services offered through Ausdal Financial Partners, Inc, 5187 Utica Ridge Road, Davenport, IA 52807 (563)326-2064. Member: FINRA/SIPC. M.Brown and Associates and Ausdal Financial Partners are independently owned and operated