Economic Predictions Are Worthless
by Richard Taylor on Sep 10, 2020
Bear with us on this one! In this video we look at a couple of famous quotes and explain that predictions on the economy and the markets subsequently result in actions taken that work against our best interests.
00:00 Economic predictions. They are worthless, they are pointless, and they are dangerous. They are worthless in the words of the Harvard economist, John Kenneth Galbraith, he said the only function of economic forecasting is to make the field of astrology look respectable. He can't do it. I can't do it. Your mate down at the pub can't do it. None of us can. Even if he could, it wouldn't make any difference because economies and investment markets do not move in tandem. They are related. Yes, but they do not move in tandem. And being able to accurately predict the economy, which we can't do does not mean that you could predict which way the market's going to go. It's pointless because we know that since 1929, the US Stock Market has delivered an average annual return of 10% a year. Who wouldn't take 10% a year?
01:09 The problem is only in six of those years, has the return in that year, been between two percentage points of that 10%. So only six times has it been between eight and 12%. You've had to enjoy that 10%. You've had to suffer extremely high highs and extremely low lows. Upwards of 30, 40 even 50%. And you have to have to ride out the highs, but more importantly, you have to sit out the lows. Sit tight through the lows. And that's what we struggle with. But to generate 10% a year, all you have to do is participate in the long-term. So, it's pointless. It's dangerous in the words of the legendary Fidelity Fund manager from the '80s and '90s, far more money has been lost by investors preparing for corrections or trying to anticipate corrections that has been lost in the corrections themselves.
02:00 Just a very act of us trying to predict these things and taking action, harms us. And this is in fact, backed up by the Dalbar Study that I often quote, which shows that investors underperform, the very investments they are invested in. They underperform the funds they invest in because we try and predict things that we can't predict. We take action we shouldn't take, and we act against our best interests. So that is why economic predictions are worthless, they are pointless and they are dangerous. So, we're going to try not do it. If you like this video and you want to see more of what we put out, please, please subscribe to our page. We'd love to hear from you.
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