Tuning Out The Noise And Sticking To Your Strategy
The predictions for 2024 from economist and strategists have started coming out. Every year, predictions are made and ultimately don’t match reality for the year. 2023 was no exception.
In an article titled “2023—The year of terrible market predictions,” Dan Irvine wrote, “The success of market forecasting is always a mixed bag, however 2023 stands out as a particularly terrible year for forecasts. At the beginning of the year the consensus view was a recession would arrive in the third or fourth quarter. Instead, by the end of the year most major indices had achieved all-time highs, and the labor market continued to be historically strong.”
In a Dec. 21 article by Terry Lane published on Investopedia, he had the following key takeaways:
◗At the end of 2022, some analysts called for a recession ,and others saw slower economic growth, largely missing the economic rally of 2023 that transpired.
◗Analysts also predicted inflation would cool faster than it did, and stocks would struggle early in the year, mostly making the wrong call on the market rally of 2023.
◗Backed by resilient consumers and a strong labor force, the economy withstood inflation to the surprise of market watchers.
There is a lot of data analyzed before making predictions. Gary Schlossberg, global strategist for the Wells Fargo Investment Institute, was quoted as saying, “Forecasting the economy a year out into the future is a difficult task.” He went on to note that in making annual predictions, “Economists look at several factors. In addition to assessing drivers like inflation, interest rates, financial conditions and liquidity, economists will also look more closely at individual sectors, sales trends, and housing affordability, and examine special conditions for any given cycle, such as the lingering effects of the pandemic. ”There are a lot of inputs where the inputs and assumptions can be inaccurate.
One of the most difficult parts of long-term investing is not reacting to outside influences. We know the future really is unpredictable. We can try to identify and highlight some longer-term trends. It can be so tempting to try to take advantage of those trends. When you make that attempt to “beat the market,” you need to be right twice: once when you get in or out and again when you reverse your position.
Over the long term, maintaining a steady portfolio allocation will reward your discipline. Design a portfolio that takes into consideration your long-term and short-term goals, how you personally react to market fluctuations and what resources you have available to withstand market fluctuations.
The previously referenced Irvine article concludes with, “Don’t forget the primary lesson of 2023, most market forecasts are wrong. Diversify, and only make small portfolio tilts, never completely change your investment strategy or allow your portfolio to become too concentrated by following the predictions of market prognosticators.”
To counteract this media influence, I recommend a short video by Dimensional Fund Advisors called “Tuning Out the Noise. ”Its message also cautions against making portfolio changes in response to current headlines. “We are constantly inundated with headlines and noise that feed our instincts to react. In reality, a lot of the media voices we hear have little meaning for long-term investors, and reacting to headlines can be the worst of moves for your long-term financial success.” When you feel the need to make a change, take a pause and reflect on whether this is a strategic move due to a change in your personal circumstance or a reaction to what you’ve been hearing and reading.
Looking forward to what will happen in 2024 is anyone’s guess. My prediction is that the stock and bond markets will go up and they will go down. If you are a long-term investor, a downturn in any given year will be disappointing, but remaining invested in a
well-diversified portfolio will (in theory) yield long-term positive returns.