The Crystal Ball Must Have Been a Bit Cloudy: How 2018’s Investment Predictions Fared

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I’ve written before on how much I love the holiday season. I love the spirit of the season, I love spending time with loved ones, and I even love (most) holiday music. Another reason I love this time of year so much is because it gives us a chance to look back at the year that is ending. As a financial advisor, I bring a different perspective to this lookback.

At the end of each year, the so-called financial experts and investment gurus come out of the woodwork to make headline-grabbing predictions about what will happen in the financial markets in the upcoming year. For the last dozen years or so, I’ve made it a habit to save many of their calls so that a year later I can compare the predictions to reality. It’s time to look back at the predictions for 2018 to see how they did.

First, I must admit that I come at this exercise with a bit of bias. My firm’s investment philosophy is based on the belief that no one, not even the experts, can accurately and reliably predict what is going to happen in the markets. That being said, I’m happy to recognize the ones who got it right last year because odds are that they won’t get it right two years in a row. So, let’s jump in …

First this year is JP Morgan’s Global Market Strategist Samantha Azzarello. She called for 2018 to be a continuation of the bull market that was so strong in 2017. She predicted the financial and technology sectors would lead the way and said that the chance of a bear market was near zero. Reality? The bull market did not continue. With one trading day left in 2018, the S&P 500 was down 7%; the financial sector was down 15% (as measured by the S&P Financial Index); and the technology sector was off 2.5% (as measured by the S&P Information Technology index). Better luck in 2019!

Next up is MarketWatch’s investing columnist Philip Van Doorn. In his final column of 2017, he picked 18 stocks that a variety of other analysts predicted would rise 50% in 2018. The results of this lookback highlight the risks of trying to pick individual stocks. Of the 18 the analysts selected as big winners, 14 lost money for their shareholders. Five of the picks lost more than 50%, and another five lost between 25 and 50%. Only four of the picks finished the year in positive territory. Two were great calls, up 61% and 91%. Bottom line is that 78% of the most promising picks for the year finished lower—most substantially so. You would probably have better luck in Las Vegas.

Kiplinger’s columnist James Glassman took a different approach. He took the top picks of several of his favorite actively managed mutual funds and threw in one on his own. His results were a little better, but not much. Of the top 10 Picks for 2018, six of them lost money, from 10% to 55%. Four of the picks gained for the year. McDonald’s (MCD) was up 1%, and the top pick, Lululemon (LULU), was up 57% for 2018.

Byron Wien, Vice-Chairman of Blackstone Private Wealth Management Group, made some surprise predictions for the year. He called for the S&P 500, which started 2018 at 2,743, to dip below 2,300 during the year but finish above 3,000. He got close on the first part of the call. The index hit 2,346 during the carnage in the markets that occurred in the week before Christmas. But it was nowhere near 3,000 to end the year.

Byron Wien also called for oil prices to surge above $80 per barrel. He was close. Oil hit $73.58 a barrel at the beginning of October. But the price fell dramatically in the last quarter of the year, currently around $45 per barrel. He also missed on his political predictions—calling for the Republicans to lose control of both houses of Congress. Well, he got that one-half right.

In their report “2018 Equity Outlook,” Morgan Stanley made a pretty good call. They said that the S&P 500 would reach 2,750 before the end of the year, that it was likely to occur early in the year, and that it could be the high for 2018. We did hit 2,750 early, but the index rallied through the summer and went above 2,900 before the end-of-year selloff.

Vanguard was cautious in their year-end guidance to investors, calling for stocks to show a 4–6% gain for the year. The caution was good; the specifics were not.

Merrill Lynch said that the outlook for stocks in 2018 remained bright but only predicted a return of 3.8% return for the S&P 500. With one trading day left at this writing, the index was down just over 10% for the year.

Jeffrey Gundlach, the “Bond King,” had a couple of the better market calls for 2018. He predicted the S&P 500 would end the year in negative territory. He also felt “dubious” about the value of bitcoin (do you remember bitcoin?). Speculators would have done well listening to him. Bitcoin, which traded as high as $19,650 in December of 2017, is currently trading at $3,817. That’s a drop of 80%. Dubious, indeed.

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While I feel confident that each of the predictions was made with the best of intentions, it’s important to remember that these experts are the best and brightest minds in the investment world. If they regularly miss their calls by this much, how can we, as regular individuals, expect to do better? I believe that it is just further proof that we are better off by not predicting. Instead, develop a strategic asset allocation plan for your portfolio, and rebalance when the markets do whatever they are going to do.

Once again, the prognosticators have made their picks for 2019. I gathered them together in a safe place, and I can’t wait for next Christmas!