Forecasts are for losers – both those who express them and especially those who heed their advice.
It must be something in the holiday eggnog. Every year at this time, smart people feel the need to speculate on where the economy and the stock market will be a year from now. It’s silly to think that anyone can predict the future, but fully grown, well-educated professionals still fall victim to the urge every December and January.
These predictions are almost always wrong.
But for you, focusing on one, likely-inaccurate potential outcome prevents you from being properly prepared when something different happens.
Forecasts = Professional Guessing
As Barry Ritholz says in his annual critique of professional guessing:
Most forecasters are barely familiar with what happened in the past. Based on what they say and write, it is apparent they often do not understand what is occurring here and now. Why would anyone imagine that they have the slightest clue about the future?
In hindsight, everybody saw the 2007-2009 crash and Great Recession coming, but in reality we were blindsided. I clipped this “expert” analyst comment back in January of 2008 (at which point the stock market was already off its highs by more than 15%):
Nevertheless, the current consensus is that we will not enter a recession … Current forecasts are for consumer spending and the housing market to regain strength during the second half of the year.
The Problem With Predictions
I’m actually OK with professionals making fools of themselves on national TV. What they do to their reputations in search of 15 minutes of fame is their problem. It’s how people are encouraged to let these forecasts drive their financial decisions that scares me.
Annual predictions create a false sense of security. Rather than be alert for whatever is happening at the moment (“Be” is the first of the BASICS of Wealth Health), it’s easier to focus on the prediction as the only possible outcome.
Ready For Whatever
Our local weatherperson, Dave Hovde, has unusually accurate forecasts. Of course, we see 220 sunny days a year around here so his job is easier than most. But I still like the guy even when he’s dead wrong. The reason? I expect him to be wrong from time to time.
If I get up in the morning and there is rain on the radar in my weather app, I take along an umbrella no matter what Dave forecast the night before. If it rains, I’m happy because I’m ready for it. I’m even happier if Dave was right and I don’t need the protection.
What’s Protecting Your Wallet?
It’s always better to be prepared for multiple outcomes rather than one. If the good stuff happens, you’ll be happy but if bad or ugly stuff comes along, you’ll be prepared … and that leaves you much better off than being surprised.
To steal (and twist) the popular question asked by a big-name credit card company, “What’s Protecting Your Wallet?” If you’re only ready for the one forecast outcome, you better hope the person making that prediction is right.
But if you’re ready for the many things that could happen, you’re far more likely to be pleased with the results.