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A reliable forecast for 2018

| January 12, 2018
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I am quite confident in my forecast for 2018. To be fair, it was the same forecast I had in prior years and will likely be the same forecast in future years. Why wouldn’t I keep it the same…it has an overall accuracy very close to 100%.  Here is my forecast for 2018:

  • The economy/market will do something that surprises us
  • No one will be able to predict what will happen perfectly, but it will all seem completely obvious in hindsight
  • You will be tempted to abandon your plan at some point based on an "expert" forecast and/or a short-term market fluctuation
  • When you focus on those things you can control (i.e. your reaction) will have a better experience than if focus on what you can’t control nor predict (the market)
  • If you abandon your plan to chase a “winning investment” or “sure thing” (think bitcoin), you will likely have lower long-term returns than if you had stuck with your plan

You may be frustrated that my forecast because it doesn’t say anything about where the market will go or what sector to invest in. Sorry to disappoint - none of us has any real idea what the market will do in the future. But understand that in my 25 years advising clients, I have learned that the best results are obtained by those who have the discipline to ignore the distractions and stick with the plan we have developed.  PLUS:  I like to be a little "cheeky" - no harm in that. 

To illustrate my point, here are some really great :) forecasts from last year: 

  • On 12/17/2016,  10 Wall Street equity Strategist forecasted the closing value of the S&P 500 as of 12/31/2017.  Their predictions ranged from a low of 2300 to a high of 2575.  The actual 12/31/2017 closing value for the S&P 500 was $2674.  (source Barron's)
  • Marc Faber, editor of the "Gloom, Boom & Doom Report" predicted on 08/09/2016 that the S&P 500 was "set to crash 50%".  From an 8/9/16 close of 2182, the index rose +26%.  (source CNBC).
  • Savita Subramanian, head of US equity strategy at Bank of America-Merrill Lynch, predicted on 10/09/2016 that the US will "hit a recession some time in the 2nd half of 2017".  (source CNBC)

Why are forecasts so Alluring?  Our attraction to forecast is largely subconscious. It boils down to how the brain likes to operate. Our brain is a planning machine; it finds much contentment and peace in being able to plan. When we don’t know what the future holds, we can’t plan with certainty. This bothers our brains. So, we subconsciously, seek some sort of certainty. And forecasts, especially confident ones, provide an illusion of certainty.  We are subconsciously attracted to forecasts even though we consciously recognize that forecasts historically have not been very accurate. (No kidding!)  We fix this problem by giving greater weight to forecasts that (1) confirm what we want to happen (2) are more confident than others. But these don’t improve the accuracy, just our perception of accuracy.

There is a fun video on the "Mind Games" page that talks about consensus and how "accurate" the forecasts for 2017 were not.  Check it out.                  

I really hope that 2018 is a prosperous, fulfilling and happy year. I don't know what the market will bring to us this year, but I do know that I'll be there to help you navigate whatever it is.  

Joan M. Gilles, CRPC, CLU, ChFC

The views stated in this letter are not necessarily the opinion of Cetera Advisor Networks LLC and should not be construed directly or indirectly as an offer to buy or sell any securities mentioned herein. Due to volatility within the markets mentioned, opinions are subject to change with or without notice. Information is based on sources believed to be reliable; however, their accuracy or completeness cannot be guaranteed. Past performance does not guarantee future results.

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