As 2014 wraps up, it’s time to start looking forward to what 2015 may bring us. Click on any financial website and you are inundated with their “Outlook” reports for the upcoming year. An abundance of economic and investment gurus giving you their predictions for the economy, stock market, interest rates, commodities, real estate, hot tips, and can’t lose trades. They put price targets on just about every financial market in the world. Barrons recently published their gurus’ projections and to no surprise, everyone is bullish on stocks and thinks interest rates will be higher.
We at Lakeview take a much different approach. We refuse to play the fool’s game of predicting the future when it comes to the markets. It is impossible to do consistently. In the dynamic world we live in, the truth is, no one really knows what’s going to happen 6 months, much less 1-3 years from now. Peter Lynch once said, “Nobody can predict interest rates, the future direction of the economy or stock market. Dismiss all such forecasts.” Even Alan Greenspan was also quoted recently saying, “We really can’t forecast all that well. We pretend we can, but we can’t.” And he was the chairman of the Federal Reserve!!! If these two titans of finance denounce market forecasting, then why do so many subscribe to it?
We remember very well back in 2008 when all of the projections said the first 6 months of the year would be soft followed by a strong second half of the year which of course was furthest from the truth. Or even this past year. While most projections called for an increase in the stock market (they usually do), very few, if any, projected that interest rates would be lower and oil would be below $60 a barrel. Long term treasuries were the best performing major asset class this year. I can’t remember anyone at the end of 2013 pounding the table to buy long term treasuries. I could go on and give you countless examples of how forecasting is not consistent over time, however I will just quote John Kenneth Galbraith by saying, “We have two classes of forecasters: those who don’t know and those who don’t know they don’t know.”
At Lakeview, we are not concerned with being right about what the markets “may” do in the future. Rather, our goal is to make money today with the opportunities the market is giving us now. We strive to accomplish this by having a rules based investment system that helps us identify which asset classes are currently performing well, participating in them appropriately, while managing our risks effectively and trying to determine how and when it might change. Do we get it right all the time? We certainly don’t. That is why our money management strategy is so important in what we do. When we are wrong, we look to cut our losses short to live and fight another day.
As conditions change we will try to change our exposure along with them. Again, our goal is not to predict where the market may go, but rather identify where it is today, determine the risks involved, and invest accordingly.
Source: Brian Boughner, CFA, CMT