The Unwise Men
George Palmer takes a festive look into the problematical world of financial predictions
As December progresses, Christians remember the gifts of three wise men to an infant born in a stable. At the same time a flock of highly educated and well placed economists, strategists and institutions send investors their attractively wrapped predictions for the holy triumvirate of imponderables – commodities, markets and politics.
Biblical numbers of reports are being written on the price of oil or level of the FTSE this time next year alongside the likelihood and implications of Brexit, Grexit and President Trump. However, sadly for them and us, these unwise men and women don’t have a guiding star of Bethlehem so invariably get these forecasts wrong or, at best, right for the wrong reasons.
A major investment bank famously predicted the price of crude oil to substantially rise from $120 two months before it started its crash down to $35. The International Energy Agency’s 2010 forecast that US oil production would “continue to fall slowly in the medium term” squarely marked the beginning of the most rapid rise in production in history as the Shale Revolution took a grip of the country.
Source: U.S. Energy Information Administration
Irving Fisher, often cited as America’s greatest ever economist, vocalised his belief that the market was at a ‘permanently high plateau’, less than a fortnight before the Wall Street Crash sent stocks lower for a quarter of a decade. Political predictions are more difficult yet, even for the most experienced statesmen – Lord Ashdown’s commitment to eat his hat if this year’s general election exit poll was accurate forced a rapid retreat from the millinery canteen as the near decimation of the Liberal Democrat MP population became more apparent.
There is an oft quoted adage that successful investing is not about being able to see into the future but about seeing the present with clarity. Understanding and assessing the present, what is changing and why, is therefore what we concentrate our efforts on. Cheap solar energy, autonomous driving and the sharing economy are just three examples of trends that we will all use to change the way that we live. As we invest for the long term our equity, bond and fund managers can take advantage of these trends for our clients when they are attractively valued. With the first interest rate raise in the best part of a decade, national and international political turmoil in many parts of the world and increased volatility in most markets, making predictions looks even more like folly than most years. We look forward to discussing the more stable and long term trends with you in the future.
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