Stop making predictions
- Robin Powell
- Jan 20
- 3 min read
The investing industry loves to make bold predictions. Financial commentators often appear in the media claiming to foresee market trends or economic turning points. But as history has shown, these forecasts are rarely accurate.
While some patterns like increased volatility are more predictable, no one truly knows where the market is headed next. That’s why basing your investment decisions on short-term forecasts can do more harm than good.
As Professor ELROY DIMSON explains, successful investing isn’t about trying to predict the future, but about preparing for what you can’t control.
KEY TAKEAWAYS
1. Market predictions are often wrong
Economic and market predictions may sound convincing, but they’re notoriously unreliable. Experts tend to extrapolate existing trends, predicting continued growth rather than potential reversals which means you could be caught off guard when things change.
2. Timing the market increases risk
Trying to avoid downturns or catch upswings sounds sensible, but poor timing can lead to missed opportunities or larger losses. The cost of being wrong is often higher than the potential benefit of being right.
3. Prepare for uncertainty, not precision
Rather than chasing predictions, it’s wiser to build a long-term strategy that can withstand market ups and downs. A diversified portfolio and a patient approach help reduce the impact of volatility over time.
RELATED CONTENT
TEBI ON YOUTUBE
Have you visited the TEBI YouTube channel lately? There’s already a wide selection of high-quality videos on there. Why not subscribe and be one of the first to see our latest content? You'll also find our videos on Instagram and TikTok.
TRANSCRIPT
Robin Powell: The investing industry is full of people who claim they can predict the future.
You often see them quoted in the media.
But forecasting economic developments and movements in the markets is notoriously hit and miss.
Elroy Dimson: It's a very difficult thing to do. What we can predict is volatility when markets become volatile and stop moving up and down.
Then after a period of volatility, which might be when the market has jumped up or might be after the market has declined, the likelihood of an extreme move is amplified. So in that sense, we can predict when a market is more likely to fall, but it's also going to be more likely to increase in value.
RP: Market forecasts often seem very plausible.
But the truth is, nobody knows whether, in the short- to medium-term, markets will go up or down.
ED: It's quite popular at the turn of the year for that to be predictions that appear, for example, in the financial press. What you tend to find is that commentators extend trends more often than they forecast reversals.
So if you see that markets have been going up, what you find is that, the forecast for the next quarter or the next half year or the next year is more likely to be favorable rather than to predict that there will be a crash.
RP: The problem is, it’s human nature to want a degree of certainty.
The economy and the markets are hugely complex. We want to believe there’s someone out there who knows exactly what’s going on.
ED: Your investment performance depends on three things. The price of which reports the income you get over the period is why you hold the investment, and the price at which you sell.
So market timing, since people will often be buying exposure to the market, must involve asking whether it's a good time to buy. In other words, whether prices are likely to go up when it's a good time to sell to avoid a decline. So it's natural to focus on that, as well as on the level of income that might be generated by an investment.
But there is a problem. And the problem is that, often times, when people make a prediction, they get it wrong. And the cost of, for example, trying to avoid the worst times or capture the best times is that you might get it completely wrong. And that's simply increases the risk over the long haul of your investment portfolio.
RP: So, although it’s very tempting to listen to market forecasters, we shouldn’t take their predictions too seriously.
The best approach, as Professor Dimson says, is to be prepared for all eventualities — and ride out those inevitable periods of market volatility.
