Yogi Berra’s famous quip embodies the dilemma of financial prognostication. For all the gallons of (virtual) ink spilt on where the market will be trading a year from now, it’s startling how few of the “no brainer” predictions made by the world’s top analysts come true. Luckily, few of them — whether relative upstarts like Nouriel Roubini or eminence grises like Richard Russell — ever have to answer for the accuracy of their calls. Sadly, life’s a bit tougher for those of us who actually manage money for a living.
You only have to think back to one year ago, when everyone from the mainstream media to super speculator George Soros dismissed the then-two-week-old pop in the S&P 500 as a “sucker’s rally.” Financial Armageddon was still on the horizon. Both U.S. Treasuries and the U.S. dollar were set to go off of a cliff. Gold bugs gleefully projected that Keynes’ “barbarous relic” would hit $2,000 an ounce before the end of 2009. The only stock market even worth considering was the economic juggernaut that was China — the savvy savior of the global economy that could do no wrong.
Fast forward to today and the world is a very different place. The S&P 500 is up almost 73%. U.S Treasuries are broadly flat. And the U.S dollar has rallied more than 5% during the last six months. And the Shanghai stock exchange is among the worst-performing stock markets on the planet since it peaked in August.
The bottom line? Pursuing the simplest strategy — staying “dumb and long” — has been the single best moneymaker over the past year. Yet, you’d be hard pressed to find any financial prognosticator, who also manages money for a living, who made that call 12 months ago, though, to be fair, both Warren Buffett and the United Kingdom’s Anthony Bolton did so in October 2008.
Being reminded of how badly the top investment themes of a year ago fared 12 months later won’t instill any modesty in us professional prognosticators.
None of us is ever wrong. We’re just early…