Market Forecasts: Be Wary!
by Sidney J. Ruth, CPA/Financial Advisor

“It generally isn’t what you don’t know that will get you in trouble, it is what you don’t know you don’t know, and what you do know that isn’t so.”
— Will Rogers (attributed)

As we headed into a new year, on every newsstand, radio station, and financial television shows, prognosticators all had an opinion on what direction the market will move in 2007. They tend to pontificate with almost absolute certainty that their opinions are correct and that investors should follow their example or miss out on the super-sized returns that their advice is sure to bring. Often this advice causes investors to make drastic shifts in their portfolios or lie awake at night worrying that they are not invested in the ‘hot’ asset class.

Know That You Don’t Know

During the late nineties, people tended to forget that they didn’t know where the market would go next. It seemed obvious – it goes up! It is vitally important to know what we don’t know. At FIFS, we don’t know where the market will go in the short run. While it would be comforting to our clients to pretend we could call a market direction, it would be dangerous. Anyone can design an investment plan that works if their predictions prove to be dead-on, the real value is designing a plan that works when all the forecasts are wrong. Furthermore, I have yet to read the story about the investment guru who is always, or even regularly, correct in his or her market predictions, so I will assume they don’t exist.

It has been our experience that the wisest, most knowledgeable people are those who frequently sound the most uncertain about what will happen next and who plan for as many unknown contingencies as possible. Inversely, it often seems that those with the least knowledge and experience are usually the most certain and compelling.

In short, be skeptical when people claim knowledge of what will happen next, whether it is in the stock market, or a specific ‘hot’ investment. Put together a well-designed investment plan that is not reliant on short-term predictions, but rather one that will weather those events “we just don’t know.”

FIFS Connection, Winter 2007, Vol.4, No.1