Wednesday, January 21, 2009

What the Pros Said

Recently this blog quoted John Bogle's lesson advising investors not to trust market prediction, even by experts and I posted Scherer's corollary to that lesson:

Don't trust market predictions, especially by 'experts'.

Let's take a look at some 'expert' predictions from a year ago. In a December 2007 article, BusinessWeek surveyed a half-dozen market strategists with "a cumulative 175 years of experience" to help us "think about investing for 2008." (Actual 2008 results in parentheses.)

One money manager, known for advising clients to sell just before the 1987 stock market crash, predicted a 20% gain in the S&P 500. "Our models show the S&P 500 is undervalued by 25%. Our indicators are extremely bullish." Her recommendations: Lehman Brothers (2008 return = -100%), Bear Stearns (2008 return = -100%), and Merrill Lynch (2008 return = -77%).

Another 'expert' who is famous for challenging academic research about index investing was very bearish, and advised riding out the storm in a portfolio holding 50% in bonds and 20% in cash. (Maybe he did know something.) He was in favor of using utilities, TIPS and commodities for a defensive, inflation-wary portfolio. (Utilities = -30%, TIPS = -7.5%, Commodities = -39%. Oops.) And predicted a "marvelous recovery" in financial stocks in the second half of 2008. (Ah well.)

Another market analyst who has been in finance for over 35 years predicted Dow 15,000 by the end of 2008, and saw "pockets of value" in such stocks as Google (-56%), Deere (-58%), Tiffany (-48%), Nordstrom (-63%), J. Crew (-75%) and AIG (-97%).

An academic who has spent forty years analyzing technical indicators on Wall Street predicted a drop of 10% to 20% by mid-year and looked for markets to move up in the second half of the year. His advice: "Stick with large-cap growth stocks that are currently in favor." (Morningstar Large Cap Growth Index = -42%).

Tergesen, Anne. "What the Pros Are Saying." BusinessWeek, December 20, 2007.

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