In Search of the Perfect Investment

A few months, there was widespread fear of depression. The press was spouting gloom and doom. Trade Wars.  The inverted yield curve. The downturn in Europe. Populism in politics.

We dodged the bullets (see here)  and stocks roared.

The bottom line: Forecasting is worthless. In fact less than worthless. Jeff Sommer of the New York Times writes:

It is the time of year for predictions and I’ll make one: You will be better off ignoring the Wall Street stock-market predictions for 2020.

Strategists, some of whom are very smart, are issuing precise predictions for where the market will be in 12 months and they look authoritative. The record shows that they are not as rock-solid as they appear.

In fact, many Wall Street strategists are flagrantly inaccurate. They are about as reliable as a weather forecaster who always calls for balmy sunshine in a city where it rains or snows a lot. It is true that they are right about the market’s direction more often than they are wrong. But that’s only because most of them say the market will rise in the next year, which happens about 70 percent of the time.

The more specific forecasts — like how high or low the market will go in a given year, and whether it will lose half of its value or rise 30 percent — should be treated as fiction.

Sommer highlights the year 2008, when stocks fell 38.5%. The median forecast was typically cheery, calling for an 11.1 percent stock market rise. “That Wall Street consensus forecast was wrong by 49.6 percentage points. It had disastrous consequences for anyone who relied on it.” Sommer is here. 

The Economist talks about “A scary scenario.”

A recession is not inevitable. In many countries, especially America, healthy labour markets and confident consumers are bulwarks against one. Yet these defences are beginning to show cracks. And there is a worst-case scenario that should worry central bankers everywhere: that the trade war turns inflationary after all, perhaps compounded by rising oil prices, even as growth slows. The world economy is teetering on the brink of an unfamiliar type of downturn, with central banks in a period of flux. It is an uncomfortable position to be in.

The Economist is here.

I spent the weekend reading forecasts — basically to answer one question: Should I do anything different with my own investments?

The bottom line for me is NO.

For me, stay the course with a portfolio diversified among stocks (especially technology) , two Vanguard ETFs — VTI and VGT — real estate — commercial and residential — and a few bonds. One of them will usually do good. In 2019, all did well. I’m still pinching myself.

The most positive of all the forecasters I read  is Joel Ross of the Ross Rant newsletter:

2019 will go down as one of the greatest bull markets and wealth creation years in history. It was the best for both bonds and stocks in 20 years, with equities far surpassing fixed income gains. There was a huge lost opportunity cost to be in bonds and not equities. The S&P is up 28%. That is terrific performance. Hopefully you were in all US equities and did very well, and not in annuities or similar bad investments.

In my view, nothing has changed for 2020 to also be good for 100% US equities, although not likely nearly as good. Earnings should beat forecasts next year, and that will likely lead to some multiple expansion as the recession fears dissipate and cap ex spending grows again. It is possible that EU stocks, and even emerging markets may show good recovery, but they have more risk than I think they are worth. The risk reward trade off seems not worth it to me, but I may be wrong next year.

If there is some black swan event that causes Trump to look like he will lose, then all this changes for the negative. As I always suggest, listen to whoever you wish, but make your own decisions on how to invest based on your own gut feel after weighing all the input. Bonds did very well in 2019 because the Fed lowered rates 3 times, and there was a lot of foolish talk of recession driving up demand for bonds, but that is highly unlikely in 2020, and as the economy continues to expand, Treasuries are more likely to rise in yield and fall in price. Monetary and fiscal stimulus is now huge, and inflation, oil prices, and interest rates is likely to remain low, all of which are good for equities.

Above all, Don’t do stupid in your investments:

George Washington presciently said, “”Do not suffer your good nature to say yes when you ought to say no.”

Don’t do stupid — like fall

Falling can immobilize you for months. I have examples. Yesterday, I visited a friend in a rehab place. She had fallen, cracked something awful and now couldn’t walk.

Falling happens everywhere in familiar and unfamiliar places — bathrooms, stairs (yours and others), slippery floors in restaurants, etc.

Take it easy.

Favorite recent New Yorker cartoons

What’s it all for

Susan and I spent last week in Anguilla with these two delights:

First, Zoe.

Then Sophie

Both photos with my new iPhone 11 Pro Max, helped along with Adobe Photoshop.

Today’s weather in New York City

Cold, wet and rainy. And a dreary day in the stock market, which I’m ignoring. I’m shortly playing tennis and riding to the courts on my tiny Dahon folding bicycle. Exercise is probably good for me. Certainly makes me feel good.

See you tomorrow with useful tech tips. — Harry Newton.