Market Forecasting

Posted by John Posey

Does the name Harry Dent mean anything to you? Early in my financial planning career, I met someone that owned an Invesco AIM mutual fund that was modeled on the views of Harry Dent which was my first introduction. I’ll just say the investment experience the investor had wasn’t stellar. The short story is Harry made a miraculous market prediction that came to fruition in the early 1990s, coined in his book, The Great Boom Ahead. And that’s when people started listening. That one boldly accurate market prediction heralded him to the top of the financial media outlets as a market forecasting expert which led to his involvement in advising mutual fund companies like Invesco. Harry has made many sensational predictions and authored many books since then yet has never made a successful prediction in the years following…yet some people are still listening. Who knew chasing squirrels could be so much fun! For further context on that analogy, read the Financial Freedom Field Guide.

Ben Carlson, the author of the blog, A Wealth of Common Sense, highlighted Harry Dent’s story and came away with some interesting takeaways you can read here. One of the most interesting isn’t that all his books beyond the first were all dead wrong, but that there are hundreds of reviews with an average 4-star rating! Maybe some were under the false impression they were intended to be a series of fiction books! Or maybe they were reviewed before the confirming evidence was collected. In any event, that is bizarre. It would appear a definitive, unwavering prediction seems to wildly satisfy a thirst for certainty in an uncertain, changing landscape such as global financial markets. There’s never a shortage of market predictions and forecasts at any time and often the bolder and more short-term in nature, the more useless it is – case in point, Harry Dent. Messages claiming strong and detailed convictions often delivered in a cynical tone can feel like they are coming from a place of helping us, but are they really? I contend virtually never – it’s an attention-grabbing tactic and frankly it works. 

I found Ben’s discussion to be very entertaining on how to predict a market crash without ever admitting you were wrong if it doesn’t come true. Here are his bullet point steps:

• Give a specific date for the crash
• The bigger the crash the better
• Make people feel dumb for not seeing what you’re seeing
• Move the goalposts when you’re wrong

Now that last step is very important if you want to keep some people listening because if you’re going to forecast the market you’ll inevitably be wrong from time to time. Here are the “move the goalpost” excuses from the article:

1.  If only this one thing would have gone my way I would have been right.
2.  Something completely unexpected happened so it’s not my fault.
3.  It didn’t happen but I was close.
4.  I’m not wrong, I’m just early.
5.  It’s just one prediction, don't hold it against me.

Now I hope you use your market forecast training responsibly.  :) So why do I tell you this story? Because market forecasts are rarely of much value but planning for the unexpected based on real, confirmed evidence is. It is misguided to value perceived reassurances of forecasts and predictions over accepting the reality that there are no real assurances. Focus that energy on the intersection of what matters and what you can control. Don’t get distracted by forecasts and predictions, lean on the evidence. The financially disciplined will prevail.

Advisory services offered through Plains Advisory LLC, an investment adviser registered with the State of Nebraska. Insurance products and services are offered and sold separately through John Posey, a licensed insurance agent. No investment strategy can guarantee a profit or protect against loss in periods of declining values. Opinions expressed are subject to change without notice and are not intended as investment advice or to predict future performance. Past performance does not guarantee future results. Any information provided is designed to provide general information on the subjects covered, it is not, however, intended to provide specific legal, tax, financial or investing advice and cannot be used to avoid tax penalties or to promote, market, or recommend any plan or arrangement. Material presented is believed to be from reliable sources and no representations are made by our firm as to another parties’ informational accuracy or completeness.  All information or ideas provided should be discussed in detail with an advisor, accountant or legal counsel prior to implementation.