It’s always fascinating when people attempt to forecast the future. Who will go to the Super Bowl. College hoops bracketology.
If you want to waste a good hour of Internet time, take a look at some of the discussions at online predictions markets such as InTrade. Best Picture Oscar guesses are side-by-side with the eventual departure of some European country from the euro.
There’s a lot of to be said for collective wisdom when it comes to stocks. Which is why it’s all the more alarming to read about the astounding flubs of individual money managers.
Many said the euro would collapse in 2012. That U.S. bonds would crater. U.S. stocks would slip. China stocks would boom higher.
These poor guesses, among others, are likely to be recycled again and again in the coming years. Eventually one or another will start to look right. Woe to you if you invested on those forecasts in 2012, however.
Not to be left out, here are five completely fearless predictions for 2013. Feel free to recycle them for any time period you like. They have no expiration date.
- Prediction No. 1: Stocks will go up and stocks will go down. Of this you can be absolutely certain. People have the impression from looking at long-term charts that stocks must be on a general slope upward without a hiccup or a setback along the way. Focus in on shorter periods, and of course this is never true. Nevertheless, you will collect dividends along the way and, over the long run, make a good return by staying invested, rather than hopping in and out.
- Prediction No. 2: Investors will overdo it. It’s impossible to say which asset class will be targeted by the herd, but it will be one or more and the effect of so much silly money will be clear when it happens. Perhaps not clear enough for you to get in early and get out in time, but in retrospect it will be painfully obvious that the chance to trade the wave has passed. You should let it go.
- Prediction No. 3: You will zig when everyone else zags. Been lucky in the market direction guesses of late? Had a good run? Well, that’s over. Whatever your track record has been and for however long you’ve been at it, you’re going to stumble this year (or next) and you won’t like it one bit.
- Prediction No. 4: Calamity is certain. Anybody who ever predicted 12 months of peace and calm has never lived a year on Earth. It’s okay, though. Things happen, people get by, and we try to learn from our mistakes. There will be at least one earth-shattering change nobody expected. Terror attacks, tsunamis, oil spills — all of this is out of your control.
- Prediction No. 5: This too shall pass. Whatever it is, it will pass.
How does an intelligent investor prepare for such times? The fact is, you don’t. It’s much simpler and more effective to build a solid asset allocation and let the markets do whatever they are going to do.
You might get handed some unexpected gains, and you might sustain some temporary paper losses. Rebalancing is the trick that allows you to capitalize on the unpredictable nature of the markets in order to secure your retirement goals.