First comes Tax Loss Season, then the Holiday Season, and now it’s Forecast Season. For the next week or two, expect the airways and your inbox to be flooded with predictions for 2020 and the next decade. There’s no harm in looking forward to imagine what may be. There’s a great deal of benefit from guessing correctly. But when financial services peddlers make headline-grabbing projections just to sell you something, they pose a real threat to your money.
Use of sophisticated language, references to arcane mathematics, and quotes by impressive experts don’t change the fact that all such projections are just guesses.
Consider 2020. There is no way to know anything about how this year will end, given the huge and very powerful variables in play.
What if Trump loses and the US takes a hard Left turn?
It would be a major game-changer for all things financial. And that’s not just true for Americans, given the US dollar’s still only mildly eroded status as the world’s reserve currency. Economic and political experimentation in the US that shakes confidence in the USD would be like a major earthquake hitting the global financial system.
But Trump might win. At least today, Mr. Market sure seems to think Trump will serve a second term.
On the other paw, that could change with a tweet on the trade war—or just about any other subject.
Or China could back out of the latest trade deal, just to rock Trump’s boat.
Or North Korea could go nuclear.
Or the Middle East could blow up.
Or China could sink a US warship in the South China Sea.
Or Russia could start a new war with any of its former vassal states, potentially dragging NATO in.
Or Iran could close the Straight of Hormuz.
The list is endless.
No one knows the future. The very best and most conservative projections rely on assumptions. These can miss, be dead wrong, or be so wildly off target they should never have been made in the first place. Only very, very rarely are they ever exactly right. The few gurus who happen to get lucky with such a guess—becoming a star for a year on financial media—almost never get it right twice in a row.
And what happens to these gurus when their bold predictions turn out to be wrong a year later?
They’ve already spent our money and are moving on to look for a fresh batch of suckers. We’re left to try to recover on our own from the losses we took believing their stories.
Beware of dramatic headlines making bold projections for 2020, written by people who are trying to sell something.
As investors and speculators, however, we do have to look into the future. Doing so and getting it right is the entire nature of our business.
Clearly, people like Ray Dalio and Warren Buffett have made great fortunes thinking ahead and getting it right.
But that’s hard enough to do with trends currently in motion, let alone those that have not yet gotten started.
I focus on what’s happening now—and watch like a hawk for data that tell me I’ve got something wrong.
So don’t ask me for a gold price projection for 2020.
As long-time readers know, I don’t participate in the Prediction Racket.
I don’t publish silly numbers that make for great sales pitches and poor results.
I’m happy if I can just get the direction right on the major trends. Then I can let my Track Record speak for itself.
What trends do I see already in motion in 2020? That will be the subject of this week’s Speculator’s Digestemail. You can sign up for that free, no-spam service here.
My goal for this article is to encourage you to ask yourself these questions when you see exciting investment headlines about 2020:
Failure to ask these questions early in my career resulted in some of my most… educational experiences.
Thursday, January 2, 12:53pm, EST, 2020