Irving Fisher was a noted 20th century economist. No less an authority than Milton Friedman called him “the greatest economist the United States has ever produced.” However, he made a statement in 1929 that all but destroyed his credibility for good. Three days before the famous Wall Street crash he claimed that “stocks have reached what looks like a permanently high plateau.”
Sadly, mistakes like that have been all too common. Y2K anyone? Or how about the book by James Glassman and Kevin Hassett in 1999 entitled Dow 36,000? That book’s introduction states: “If you are worried about missing the market’s big move upward, you will discover that it is not too late. Stocks are now in the midst of a one-time-only rise to much higher ground—to the neighborhood of 36,000 on the Dow Jones Industrial Average.”
Sadly, it didn’t exactly work out that way and a used paperback copy of the book may now be purchased online for as little as a penny. It isn’t even worth that much except perhaps as a reminder of the perils of forecasting.
More specific market predictions do not generally fare any better. Back in 2000, Fortune magazine picked a group of 10 stocks designed to last the then-forthcoming decade and promoted them as a “buy and forget” portfolio of their best ideas. Unfortunately, anyone who purchased that portfolio would want to forget it.
If one had invested $100 in an equally weighted portfolio of these stocks back then, 10 years later one would have been left with only $30. So much for Fortune’s market-timing and stock picking abilities.
Of course, there are many similar—even worse—examples. In December of 2005, Fortune (again!) was pitching “10 sturdy stocks” that it claimed were “built to last.” Citigroup at $50 and Washington Mutual at $42 featured prominently. Within two years, both of these stocks were well on their way to zero. That’s actually zero.
Now, consider the range of estimates made by the major investment firms for the S&P 500 in 2011; these were, of course, made at the beginning of the year for where the index would end the year. The average, or mean, of the estimates was 1,400.
Strategists from most Wall Street experts predicted 10-12% market growth for 2011 while only two called for minor declines. Ken Fisher of Fisher Investments called for the decade beginning in 2011 to be as good for the markets as the 1990s. Overall, most institutional and individual investors were quite bullish, while advisor confidence was at a four-year high.
Most of these experts, who are highly educated, vastly experienced, and examine the vagaries of the markets pretty much all day, every day, will necessarily be wrong and often spectacularly wrong based upon the disparity of the predictions alone. One can look at many other high profile stock pickers and find numerous tales of woe (more here).
Indeed, all available evidence indicates that any attempt to engage in market timing is doomed to failure. If you think you can predict the future in the markets, think again. Your crystal ball does not work any better than anyone else’s.