March 9, 2014 marked the five year anniversary of the U.S. stock market recovery from the 2008 financial crisis and global market meltdown. As with all stock market recoveries, the last five years were full of predictions and expectations by many market “experts” who continually challenged this stock market recovery.
It seems that daily, we are inundated with media pundits, Wall Street watchers and financial gurus who bask in their 15 minutes in the spotlight as they attempt to predict the next market move.
Interestingly, a popular blog published by the Business Insider has been tracking the predictions and commentary of today’s most popular financial “experts” and they concluded that the average market prediction offered by experts is only 47.4 percent accurate. Flip a coin and your odds for predicting the market are better!
It’s hard to imagine that the average market “expert” isn’t able to match the track record of a coin flip, but research has proven the failure of active management and market forecasting time-and-time again.
Let’s take a look at some of the most well known market forecasts and predictions. Here are several notorious stock market calls that occurred during this current market rally:
-- March 2009: Nouriel Roubini, made famous by predicting the 2008 financial crisis, predicts new lows in the next 18 months. Actual: The S&P 500 returned an astonishing 47.6 percent.
-- December 2009: Former PIMCO CEO Mohamed El Erian says stocks will tank within one month. Actual: Stocks did decline a modest 1.7 percent the month of December, but followed by a 15 percent return for the year ending 2010.
-- July 2010: Robert Prechter, author of several books on technical analysis and market forecasting, says traders should short the S&P 500. Actual: Stocks returned 30.7 percent for the following year.
-- October 2010: John Hussman, principal owner of Hussman Mutual Funds, says the market is "overvalued, overbought, overbullish." Actual: The following 3 months produced a return of more than 10 percent.
-- August 2011: John Mauldin, author and chairman of Mauldin Economics, commits to his recession call, saying stocks could fall 40 percent over the next 12 months. Actual: Stocks returned 9.1 percent over the following year.
-- October 2011: John Hussman calls a recession and says the European mess has only gotten started. Actual: Never did get that recession and the U.S. stock market returned more than 30 percent the following year.
-- December 2011: UBS's Chief Strategist Jonathan Golub says he would not be an equity buyer. Actual: A “non-equity” buyer would have missed out on a 16 percent return over the following 12 month period.
-- October 2012: Former manager of the Prudent Bear Mutual Fund, David Tice, warns that the market is like 2008 right before the crash. Actual: It may still come, but U.S. Large Stocks are up more than 27 percent and U.S. Small Stocks are up more than 43 percent since his prediction.
We have experienced some bumps and bruises along the way (including a brief but significant stock market downturn in the summer of 2011. Remember the U.S. debt downgrade?) but in all reality, we are continuing to experience a strong and sustained stock market recovery. We don’t know, nor can anyone predict with any consistency, when the current bull market will end. But we do know it would have been costly for investors who may have acted on previous market “predictions” and abandoned their investments in stocks. Continuing to maintain a low-cost, diversified portfolio, that includes a disciplined trading strategy and takes advantage of market volatility, remains the key to long-term investing success.