Investment Non-Outlook for 2022

This time of the year, the asset management industry dusts off its crystal ball and issues an ‘investment outlook’ for the year ahead. The only thing you need to know about these futile attempts at financial clairvoyance is that they aren’t worth the paper they are written on.

2021 was a challenging year in many respects. The stop-start reopening of the economy was less than ideal. WFH, then back to the office, WFH again. Still, the global equity market delivered another year of double-digit returns, the third one in a row! Yes, you read that right – a double-digit return in each of the last 3 years.

Imagine if someone told you at the start of 2021, as the mob invaded the US Capitol forcing elected officials to flee as they certify Joe Biden’s election win, and the UK was gearing up for its third lockdown…that this was going to be another fantastic year for the great companies of the world?

The miracle that is the global capital market continues to confound us. But that hasn’t stopped the forecasters from dusting off their crystal balls, ready to predict what next year holds for the great companies of the world.

Whenever I get asked what our return expectation for the year ahead is, my response is that we expect the stock market to either go up, down or sideways in the coming year. Inevitably, I get asked to be a bit more precise. To which I respond, I expect UK equity to land somewhere in the ballpark of -52% to 152%. 😜 It might seem like a ridiculously wide range but that’s what cold hard data over the last century tells us. What I find truly ridiculous is that year after year, investment forecasts try (and fail) to accurately predict the return for the year ahead. Yet they continue to churn out these market forecasts, presumably expecting people to base their financial decisions on this.

It bothers me that intellectual and professional dishonesty is affected by to trying to forecast investment returns for the next decade, let alone the next year. And I am pleased I am not the only one. Warren Buffet, the world’s greatest investor once observed that ‘we’ve long felt that the only value of stock forecasters is to make fortune-tellers look good. Even now, Charlie and I continue to believe that short-term market forecasts are poison and should be kept locked up in a safe place, away from children and also from grown-ups who behave in the market like children.”

His partner Charlie Munger once quipped that “I don’t let people do projections for me because I don’t like throwing up on the desk.”

Sadly, human nature craves forecast. Since time immemorial, people paid fortune tellers to read the guts of sheep in an attempt to foretell what the future holds. These market forecasters are no different. They exist because people crave predictions, even if it means little in the real world. Forecasters often appear knowledgeable and credible, but they should be treated like the joke that they truly are.

Financial planners often come under pressure from clients to forecast the future. I mean, how can you plan decades ahead, if you have no idea what markets are going to do next year or the year after? Thankfully, great financial planning doesn’t require ANY forecasting. And at Betafolio, we have over 120 years’ worth of capital market data which enables us to stress test thousands of plausible scenarios. We don’t need to know which particular one of these scenarios would pan out but we’re ready for whichever one the gods throw at us.

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