(Photo courtesy of Pexels) There has recently been a lot of negativity directed towards the mutual fund and financial advisory industries around performance and fees, partly because of the emergence of Exchange Traded Funds (ETFs) with lower fees. Advisors however rely on mutual fund fees. […]
(photo courtesy of Pexels) I have been a Grainews columnist for a year with my first article having appeared on March 13th, 2018. The articles are generally coordinated with my blogs but not always. This series of articles will catch up blog readers with my […]
In the column, “Re-Think What You Thought,” I mentioned less than half of predictions are accurate. This phenomenon has been well documented, yet market predictions continue to abound. I began making market predictions in my newsletter in January of 2016, mostly to poke fun at the whole prediction process, but also to test myself against the experts. How have I done over the years?
The back-drop to my first year making predictions came on the heels of a volatile and difficult 2015. The US experienced a major correction, while Canada was in the grips of a resource driven bear market. Pundits often base predictions on recent trends, and thus had very modest expectations for 2016. My predictions on the other hand, were bold. Firstly, I predicted that most predictions would be wrong. This is my standard first prediction. I also predicted that the markets would return 20-25% in 2016 and that the Canadian market would out-perform the US. This was an un-heard of forecast at the time, with oil and the Canadian market plummeting simultaneously.
By year-end my predictions had proven prescient, with the Canadian market up 20.2% and the US up 12.0%. Those who believed the experts might have sat out this great year. The beginning of 2017 saw the experts once again expressing low expectations of 0-5% gains for the year. Once again my predictions were bold reiterating that most predictions would be wrong, and calling for gains of 15-20%. From a longer-term perspective I also predicted that market returns would revert to their long-term trend of delivering about 10% average annual gains. Between 2000 and 2015 market performance was only half the historical norm, leading many to suggest that 10% returns were no longer achievable.
The 2017 market returns were an awesome 21.8% in the US and a more modest but still respectable 8.3% in Canada. While these gains fell outside my predicted range, they were vastly superior to the expert’s tepid forecasts.
The great market performance of 2017 then drove the pundits towards a more bullish 2018 stance, predicting gains in the range of 7-10% for the US, and 4-5% in Canada. My crystal ball became very cloudy. I once again predicted that most predictions would be wrong but failed to provide a guideline of how I thought the market would perform, writing “I don’t have a clue,” with the exception of ruling out a dramatic collapse of greater than 12.5%. This was clearly my most cautious prediction of the three years. I also forecast significantly more volatility in 2018 than in 2017.
My synopsis turned out reasonably well, certainly better than pundits and their bullish stance. The US market ended 2018 down 4.4%, somewhat better than the Canadian decline of 8.9%. Day-to-day volatility was high throughout the year and especially high in December.
What about 2019? In my January 3rd newsletter I wrote that I had trouble getting a read on expert predictions because they were all over the map. Generally the experts tend to flock together giving me a pretty good sense of where they are at. I think the root cause of the “all over the map” predictions was the pre-Christmas market plunge. One quote I recorded was, “The S&P 500 will drop to 2900 (in 2019) from 3000 at the end of this year.” While appearing in an article around New Year’s the prediction must have been made sometime before Christmas, when the writer was positive about the end to 2018 but negative on 2019. The S&P 500 closed 2018 at 2500. There was a 500 point difference between where this expert expected the S&P 500 to close 2018 and where it ended, clearly demonstrating my main point around the folly of market predictions.
My 2019 predictions were again bold. It’s a broken record but I predicted most predictions will be wrong, for the markets to be up in excess of 12.5% and for the Canadian market to beat the US. It is far too early to claim victory on these but as of the date of writing, we are off to a good start.
The rationale for my prediction process is outlined in the book, which would also be pertinent to commodity marketing. Those who subscribe to my newsletter will receive back issues where you can fact check this brief summary. Does my record mean that I can confidently make accurate predictions going forward? Absolutely not! I have a reasonable process but short term market direction is unpredictable. Think long-term, and avoid making bold moves based on bold predictions!
During a 35+ year career in agriculture, Herman VanGenderen became an active investor in stocks and real estate. His book “Stocks for Fun and Profit: Adventures of an Amateur Investor is available at internet book sites. Visit his website at www.you1stenterprises.com, or email comments and questions to firstname.lastname@example.org.
(Photo courtesy of Pexels) We are approaching the Registered Retirement Savings Plan (RRSP) deadline but deadline or not, I suspect most readers will have contribution room available, which can be found on your annual income tax “Notice of Assessment.” Many Canadians have tossed the RRSP […]
(Photo courtesy of Pexels)
2018 has been a challenging year for stock and bond investors around the world. Virtually every asset class, in every country is down year-to-date. Perhaps things will change in the last two weeks of the year, but at time of writing it has been a pretty miserable year.
Following is a sampling of stock market declines (not including dividends) around the world year-to-date: China is down 22%, Germany 16%, Emerging Markets 15%, Hong Kong 13%, The UK 11%, Canada 10%, France 9%, Japan 6% and the US is best with a decline of just 3%. Losses are even more pronounced if compared to market peaks which generally occurred in late January.
Bonds, which are considered safer, also declined in value around the world as interest rates increased. I consider bonds riskier than a well selected stock portfolio because they get ravaged by taxes and inflation. While they are less volatile than stocks, long-term they are riskier. Thus, I don’t spend any time studying the bond market, but have read about their general decline in 2018. While I consider cash as a waste of money, this past year it proved to be the best investment, although this wasn’t predictable at the start of the year. Interestingly, expert consensus predictions at the beginning of the year were for the US market to go up 7-10% and the Canadian market to be up 4-5%. This lends credence to my first prediction every year, that most predictions will be wrong.
If this has you depressed, you’re not alone. The majority of investors are now more bearish than at any time since February of 2016, when the S&P 500 also had plunged 11% in a two-month period. To me, this is a very optimistic sign. For more on how market sentiment impacts future returns, please read a chapter in my book titled, “’Everybody’ Is Often Wrong.” This chapter is very pertinent to commodities, as well as stocks.
As previously written, short term market direction is very unpredictable, but long-term the market returns about 10% a year. The difficult year creates a great back-drop for setting clear investment goals for 2019. I am a big believer in the SMART goal process, with my own twist. S=Simple, the goal should be very simply stated. M=Measurable, the goal should be specific so progress can be measured. A=Agreed upon, with others impacted by the goals. R=Reasonable, so they are attainable with reasonable additional effort, although having a “stretch” component can also be productive. T=Time-based, so there is a sense of urgency to achieving the goal.
The number of goals should be limited to provide focused direction, and would suggest that even ONE goal is acceptable, whereas THREE goals should be the maximum. If we set too many goals, the likelihood of achieving any is lessened. Everyone’s situation is unique, so it is important to individualize, but here are a few examples of pertinent goals regarding TFSA investing:
- Read the book “STOCKS for FUN and PROFIT ~ Adventures of an Amateur Investor,” by March 31st, 2019.
- Take better control of my own destiny by amalgamating all my TFSA accounts into one at an internet brokerage site, by Feb 28th, 2019. (Many Canadians have multiple accounts, making management more difficult)
- Maximize my 2019 TFSA contribution by adding $500 into the account on the 15th day of each month. (The 2019 contribution room is $6,000)
- Begin investing in stocks by following the, “Titanium Strength TFSA Portfolio.” Make six stock decisions during the year, by purchasing one company on the 15th day of every second month, beginning in February.
- Make up for my past lapses by adding $1,000 on the 15th day of each month until such a time as my total contribution room is used. (The cumulative total maximum will be $63,500)
These are simply examples of potential goals. Of greatest importance is setting goals you want to accomplish.
If you have enjoyed my articles in 2018, please give me a wonderful Christmas present, the gift of a book review on Amazon.ca, or Chapters. Thanks for reading my material this past year. I hope it has helped your financial success. Wishing you all a terrific Holiday Season, and all the best in 2019.
(Photo courtesy of Pexels) With the excitement of having articles in the Globe and Mail and MoneySense, I have fallen behind communicating recent articles written for Grainews, one of Canada’s leading agricultural publications. Following are links to three recent articles, all including a key investing […]
(Photo courtesy of Pexels) Please share with others on your social media if you find it informative, and if you have read my book please write a review on the site it was purchased. Please have a look at current reviews on Amazon. Much Appreciated. This article […]
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The following article appeared in THE GLOBE AND MAIL on Saturday September 29th. Please help with my mission of improving financial literacy and security, by sharing on social media. Thank You. ME AND MY MONEY How this investment author earned more than 11 per cent […]