January Predictions of a Different Sort

Happy New Year! Have you ever noticed that January is an especially prime time for finding a flurry of market forecasts in your newsfeeds? Titles abound like "What to [fill in the blank] in 2018," with the blank replaced by timely tips such as "invest in," "buy," "sell" "expect," "avoid" … you get the idea. It's all the more tempting if the title includes some guru's name: "Peter Pumpkin's Top 10 Picks To [fill in the blank] in the New Year."

There's a reason these sorts of calls to action are so compelling. As Wall Street Journal columnist Jason Zweig observed under similar circumstances in January 2017, "Confidence is contagious." He meant that literally, based on a study that had just been published in the Journal of Neuroscience. Its authors demonstrated that we can be unwittingly swayed by "more-confident people" and the decisions they're making.

So, before you act on bold new forecasts, ask yourself this question: How often do you ever see a follow-up piece on whether Mr. Pumpkin's (or anybody else's) confident predictions have been consistently correct over, say, a decade or more?

Hardly ever, right? True, when a forecaster happens to make several correct calls in a row, you may begin to see headlines touting their "skills." And when trends are on a roll – such as a hot sector, country or currency (yes, we're alluding to today's cryptocurrency craze) – fabled success stories run hot and heavy as well.

But a couple of things that are typically missing in these sorts of popular feeding frenzies are: (1) any solid evidence that hot hands consistently pay out in the long run, and (2) any coverage of the vast majority of forecasts that were ultimately proven just plain wrong. Those end up buried and forgotten under the latest "what has the market done for me lately" headlines.

Back when 2017 began amidst relatively upbeat market expectations, we echoed Zweig's commentary regarding overconfidence in the power of predictions. Then, as now, we reflected on the never-ending supply of market curve balls that can strike out seemingly certain at-bats. Then, as now, we believe in replacing random swinging at high-flying predictions with the staying power of a well-planned, long-term, globally diversified portfolio.

If you would still like to resolve to take action in 2018, we recommend being guided by these lasting tenets. Remember, one or two lucky picks are unlikely to help you build lasting wealth. Just as the house eventually wins in a casino, evidence-based odds are against your coming out ahead by trying to win more than you lose in speculative market ventures.