How Well Did You Predict 2016?
Now that the year is almost behind us, let’s turn to my favorite topic, predicting the future. As usual, there were a number of events that occurred at various times during the year, the results of which (1) were completely missed by the media and (2) went totally counter to investor expectations. In case you’ve forgotten I’ll share them here.
- Event #1: “As goes January, so goes the year.” This investment myth has a lot of believers, and it was put to the test this past January when the S&P 500 exited the month down 10.5%. It was the worst January performance in stock market history, and the media trumpeted that fact pretty broadly. Not only did large-cap stocks perform poorly, the Russell 2000 small-cap stock index ended the month down 17%, almost 30% below its all-time high. Everyone was predicting a terrible 2016 for stocks. How did things play out? As of this writing the S&P 500 is up 13% year-to-date and the Russell 2000 is up almost 22%. Do you know of anybody who succumbed to the fear-mongers and sold all the stock funds in their 401(k)?
- Event #2: BREXIT. In June, UK citizens voted on a referendum to decide whether or not to remain in the European Union (EU). Polls and the media consistently predicted a win by the “remain” side pretty much through the end of the campaign. Days before the election European and UK stocks soared. Yet the “leave” side actually won the vote, causing worldwide consternation (at least in the media). Everyone expected UK stocks to subsequently collapse as a result. And they did. For one day. But by the following week’s end, prices were higher than they had been the day before the vote. As of today, the FTSE 100 (the U.K.’s equivalent to the S&P 500) is up 15% since that memorable event. Anyone who dumped their stocks (U.K., European, or even U.S.) at that time would have missed out on some very good subsequent growth.
- Event #3: Trump. Despite his overall behavior during the election and polls increasingly favoring Clinton, but possibly thanks to Russian hacking and exposure of private Clinton aide emails together with FBI director James Comey’s announcement of another Clinton investigation days before the vote (which subsequently found nothing wrong), the result of the U.S. presidential election is arguably the most unexpected in history. And an even bigger surprise to investors was the performance of U.S. stocks after the election. Although there were a few voices asserting that a Trump win could be good for the markets, they were drowned out by predictions of disaster should that occur. I myself expected losses of 10% – 20%. We all know what actually happened. Stocks are currently up 4% since the election.
As usual, the media got it wrong every time. I was one for three (I leave it to you to guess which one). I cite these events as some recent examples of why we can’t predict the future, and consequently why making investment decisions based on our predictions can be dangerous. We will be wrong more than we will be right. There’s nothing wrong with trying to guess what will happen economically and politically. But I recommend keeping your investment strategy focused not on these various bumps in the road but rather on your longer term goal of sufficiently growing your savings in order to support your future lifestyle. That approach will not only maximize the likelihood of your being able to do everything you want in your future, it will remove one source of stress from an otherwise stressful and uncertain world.
How did your 2016 predictions turn out?