I find predictions, and the people who make them, fascinating for a few reasons. First, I \u2014 like everyone \u2014 would love to get a hint of what’s coming up.<\/p>\n
But successful forecasting is pretty difficult. Which brings us to the second reason why I like predictions: It’s entertaining to see how different the world turned out from how people expected. Here are several memorable predictions of yore:<\/p>\n
Good stuff.<\/p>\n
The blind leading the blind<\/b><\/i>
\nBut we don’t have to go back decades to find instances of people (some of them pretty smart) being wrong about the future. Let’s flip through the cyber-pages of the Dec. 20, 2007, issue of BusinessWeek<\/i>, which featured one of those year-end, \u201cwhere the Dow will be a year from now\u201d types of articles.<\/p>\n
So where did six Wall Street experts think the Dow would be at the end of 2008? Dumb roll, please…<\/p>\n
You may recall that the Dow was quite a bit lower than each of those predictions on Dec. 31, 2008 \u2014 approximately 40% lower, in fact, at 8,776.<\/p>\n
Okay, so those people aren’t really dumb. In fact, they’re likely in possession of above-average intelligence, and work with teams of analysts who also have above-average brains. And they also likely have access to the most data, the fastest computers, and the best software.<\/p>\n
And they still were very, very wrong.<\/p>\n
Boy, it would be great if we could consistently predict which investments would be the winners and which would be the losers. But it’s very difficult; in the short term, it’s impossible.<\/p>\n
Dr. Doom<\/b><\/i>
\nWant more proof? By now, you likely have heard and seen Dr. Nouriel Roubini, the NYU professor known as \u201cDr. Doom\u201d for his pessimistic outlook. He gained a lot of fame for predicting the housing crash and resultant deep recession. Good for him.<\/p>\n
In December 2008, Fortune<\/i> magazine asked Roubini for his predictions for 2009<\/a>. Here’s what he wrote:<\/p>\n For the next 12 months I would stay away from risky assets. I would stay away from the stock market. I would stay away from commodities. I would stay away from credit, both high-yield and high-grade. I would stay in cash or cash-like instruments such as short-term or longer-term government bonds. It’s better to stay in things with low returns rather than to lose 50% of your wealth.<\/p><\/blockquote>\n Well, you know how good that advice was. The assets that Roubini warned against posted huge double-digit returns in 2009. As for the investments he recommended, the Vanguard Short-Term Treasury Fund (VFISX<\/a>) returned just 1.4%, and the Vanguard Long-Term Treasury Fund (VUSTX<\/a>) lost 12.1%.<\/p>\n As Yogi Berra once said, “It’s tough to make predictions, especially about the future.”<\/p>\n On my CAPS blog<\/a>, I occasionally summarize predictions I’ve run across from the previous week or two. I always break them up into two groups: Those who predict good things for the economy or stocks, and those predict ill. Invariably, the people I quote are all smart, thorough, well-educated people. And they look into their crystal balls and see vastly different things.<\/p>\n <\/p>\n But isn’t picking stocks the same thing as making predictions? If the future is so hard to forecast, why even try?<\/p>\n Ay, there’s the rub. If you’re putting money in an IRA or 401(k), you have to choose which investments to buy with that money. And investing, by its nature, is a predictions game; you put your money into the things that you think will be worth more in the future than they are worth today.<\/p>\n So what to do?<\/p>\n