It’s difficult to make accurate predictions, especially with regard to the future—old adage
On December 4, 1928 President Calvin Coolidge sent his last message on the state of the Union to the reconvening Congress: “No Congress of the United States ever assembled, on surveying the state of the Union, has met with a more pleasing prospect than that which appears at the present time. In the domestic field there is tranquility and contentment . . . and the highest record of years of prosperity. In the foreign field there is peace, the goodwill which comes from mutual understanding . . .” He said that the country might “regard the present with satisfaction and anticipate the future with optimism.”
Before leaving office and handing the presidency over to Herbert Hoover, in 1929, President Coolidge said that the economy was “absolutely sound” and that stocks were “cheap at current prices.”
Ten months later the stock market would crash and the Great Depression would be ushered in. A quarter of the population would become unemployed. Stock prices would take well over a decade to recover from their 1929 highs. World War Two followed. Things were not sound.
In 1946 the Council of Economic Advisors delivered a report to President Truman warning of a “full-scale depression sometime in the next one to four years.” They wrote in a separate 1947 memo, summarizing a meeting with Truman: “We might be in some sort of recession period where we should have to be very sure of our ground as to whether recessionary forces might be in danger of getting out of hand . . . There is a substantial prospect which should not be overlooked that a further decline may increase the danger of a downward spiral into depression conditions.” What followed was one of the greatest economic periods, from the late 1940s to the late 1960s, in American history.
In January of 1973, right before the 1973-74 stock market crash, advisor to President Nixon, Alan Greenspan, said, “It is very rare that you can be unqualifiedly bullish as you can be right now.” Barron’s magazine, at the same time, blared in a headline: “Not a Bear Among Them. Our Panel is Bullish on Wall Street.” The stock market and economy would be in shambles for the next decade.
At the turn of the 21st century, President Clinton in his State of the Union speech, boasted, “We begin the new century with over 20 million new jobs; the fastest economic growth in more than 30 years; the lowest unemployment rates in 30 years; the lowest poverty rates in 20 years; the lowest African-American and Hispanic unemployment rates on record; the first back-to-back surpluses in 42 years; and next month, America will achieve the longest period of economic growth in our entire history. We have built a new economy.” The stock market would crash less than a year later and a housing and financial crisis would follow.
On April 11, 2001, Defense Secretary Donald Rumsfeld sent a memo to President George W. Bush and Vice President Dick Cheney on the difficulty of predicting the future, as the Department of Defense was required every four years to produce a twenty-year forecast of the national security environment every four years. In the memo Rumsfeld included the following piece written by Linton Wells showcasing just how unpredictable the 20th century was:
If you had been a security policy-maker in the world's greatest power in 1900, you would have been a Brit, looking warily at your age-old enemy, France.
By 1910, you would be allied with France and your enemy would be Germany.
By 1920, World War I would have been fought and won, and you'd be engaged in a naval arms race with your erstwhile allies, the U.S. and Japan.
By 1930, naval arms limitation treaties were in effect, the Great Depression was underway, and the defense planning standard said "no war for ten years."
Nine years later World War II had begun.
By 1950, Britain no longer was the worlds greatest power, the Atomic Age had dawned, and a "police action" was underway in Korea.
Ten years later the political focus was on the "missile gap," the strategic paradigm was shifting from massive retaliation to flexible response, and few people had heard of Vietnam.
By 1970, the peak of our involvement in Vietnam had come and gone, we were beginning détente with the Soviets, and we were anointing the Shah as our protégé in the Gulf region.
By 1980, the Soviets were in Afghanistan, Iran was in the throes of revolution, there was talk of our "hollow forces" and a "window of vulnerability," and the U.S. was the greatest creditor nation the world had ever seen.
By 1990, the Soviet Union was within a year of dissolution, American forces in the Desert were on the verge of showing they were anything but hollow, the U.S. had become the greatest debtor nation the world had ever known, and almost no one had heard of the internet.
Ten years later, Warsaw was the capital of a NATO nation, asymmetric threats transcended geography, and the parallel revolutions of information, biotechnology, robotics, nanotechnology, and high density energy sources foreshadowed changes almost beyond forecasting.
All of which is to say that I'm not sure what 2010 will look like, but I'm sure that it will be very little like we expect, so we should plan accordingly.
Five months later 9/11 would happen.
In November 2010 an open letter was sent to the Chairman of the Federal Reserve, Ben Bernanke, by a long list of leading economists and commentators, including Harvard Professor Niall Ferguson, which claimed that its policies to stimulate the economy and financial markets following the housing financial crisis in 2008-09 were going to cause inflation and currency debasement. Inflation throughout the 2010s never came, nor did currency debasement. And the economy steadily recovered.
In 2022, billionaire investor Ray Dalio said that the U.S. will likely slide into a recession in 2023 or 2024. Around the same time, JP Morgan CEO Jamie Dimon said that runaway inflation, high interest rates, and the war in Ukraine would cause the U.S. to go into a recession in “six to nine months.” He warned JP Morgan investors to prepare for an economic hurricane. In a 2024 interview with The Wall Street Journal, Dalio admitted “he got it wrong.” The recession that they predicted by early 2024, never came, and the economy, to the surprise of many people, has stayed resilient.
You get the point. Predicting the future is hard.
People like predictability, however, so we often turn to authoritative-sounding people. But authorities often get it wrong. So turning to them can lead us astray.
When it comes to investing your money, you’re best to ignore economic forecasts. Keep your head down and focus on what you can control: saving your money and investing it in things that make sense. Average your purchases of investments out over time. Take advantage of swoons in market prices. And ignore what the “experts” have to say. Because they are often wrong.
John Kenneth Galbraith, the legendary economist, put it like this: “We have two classes of forecasters: Those who don’t know—and those who don’t know they don’t know.”
If there’s one thing that’s been consistent across time, it’s failed economic forecasts.
Warren Buffett reflected on why people listen to economic forecasts: “Because there is so much chatter about markets, the economy, interest rates, price behavior of stocks, etc., some investors believe it is important to listen to pundits—and, worse yet, important to consider acting upon their comments.”
This is where the biggest investment mistakes are made. Listening to the “experts.”
Anyone who sold stocks in 2022 with the expectation of a recession coming made a major mistake, as it never came, and stock prices have rallied since then. You can go back throughout history and find the same: those who were afraid in the early 1930s, early 1980s, or following the 2008-09 financial crisis missed the buying opportunity of a lifetime. Same goes for those who listened to “experts” at market tops: in the late 1920s, 1960s, and 1990s, when they were most optimistic about stocks and the economy.
If you’re going to be successful at investing, you have to think for yourself. You have to ignore the “experts.” Because they are so often wrong.
Investment legend Charlie Munger put it like this:
I don’t let others do projections for me, because I don’t like throwing up on the desk.
Make your own projections. Do what makes sense. Think long term. Ignore short term noise and pontifications.
The biggest events that will move financial markets are unpredictable. So we shouldn’t rely on specific forecasts, especially with respect to the short term. Financial author Morgan Housel put it like this:
Since big events come out of nowhere, forecasts may do more harm than good, giving the illusions of predictability in a world where unforeseen events control most outcomes.
Who saw Covid coming? No one. Who knows if or when the next recession will hit? No one. Don’t try to predict the future.
Financial expert David Chilton put it like this:
There are a lot of very sharp people in the financial industry. The problem is that a dangerous number of them think being intelligent is synonymous with being clairvoyant. It isn’t. No one knows where markets will be in six months, what China’s inflation rate is about to do or which currencies are soon to break on the upside. Stop listening to people who think they do.
Focus on where the economy is going in the long term—which is up. That’s what’s important. To ensure you participate in the long term growth of the economy and businesses. And that you’re adequately diversified to handle any short term bumps in the road. The timing of which is not predictable.
Bottom Line
Listening to financial experts can do more harm than good.
The future is unpredictable. History validates this. If there’s one thing you can expect, it’s surprises.
Focus on what you can control: your own behaviour. And ignore what’s out of your control: everything else.