JUST PLAIN TALK: Don't get fooled with forecasts

Buz Livingston
Buz Livingston

My friend, Bill Bernstein, claims humans are apes who tell stories. Dr. Bernstein uses a tad bit of hyperbole. While apes, chimps, and monkeys can communicate, we're farther along the evolutionary path, so soothsaying comes with the territory. For example, early humans realized that longer days meant a new year filled with dreams after the winter solstice. Future prognostications soon followed, but predictions can age poorly. Here are some forecasts from best-selling authors that ended off the mark.

In 2000, James Glassman and Kevin Hassett “correctly” predicted in "Dow 36,000, The New Strategy for Profiting in the Coming Rise of the Stock Market" that the Dow Jones Industrial Average would hit 36,000. So yes, the Dow reached 36,000 in 2021, however not in 2008 as forecasted. They got the right plane but the wrong airport.

In 2005, as chief economist for the National Association of Realtors, David Lereah warned, "Are You Missing the Real Estate Boom?" Of course, real estate can be profitable. Still, Lereah's subtitle, "Why Property Values Will Continue to Climb Through the End of the Decade," was way off base. Using our home as an example, its appreciation over the last two decades is less than the S&P 500's, even with South Walton's soaring prices. Don't get me wrong; you can't put a price tag on moving to Blue Mountain. It was one of my Top Ten ideas.

One of my favorites is Harry Dent Jr.'s 2011 classic (insert sarcasm emoticon), "The Great Crash Ahead," where he predicted the Dow would drop from 11,000 to 3,500 by 2013. He's consistent. Last year he followed up with "What to Do When the Bubble Pops." To cover all bases, his "How to Survive (and Thrive) During the Great Gold Bust" will be available next year. So let's worry when Dent predicts booming markets.

Another doom and gloomer, Robert Prechter, took an apocalyptic view in 2002 with "Conquer the Crash: You Can Survive and Prosper in a Deflationary Depression." Prechter predicted a 1930s-like Great Depression basing his opinion on the Elliott Wave Theory. In 2010, he doubled down, foreseeing the Dow Jones Industrial Average cratering to 1000 by 2015. I agree with him; investor psychology moves markets, but Elliot's Wave makes palm readers look credible.

Stop looking for magic; if you happen to catch something special, it likely has as much to do with luck as brains. Spend less than what you make. Expect the unexpected. Have an investment portfolio appropriate for your goals, risk tolerance, and time horizon. Investing should be as boring as watching paint dry; it's the wrong place for thrill-seekers.

One book that's stood the proverbial test of time is Charlie Ellis' "Winning the Loser's Game"; it's on edition eight. Instead of trying to beat the market, he argues that you can win by getting the market to work for you. Dr. Ellis sells the steak, and the others sell the sizzle. Happy New Year!

You can't always get what you want, but Buz Livingston, CFP, can help you figure out what you need. For specific advice, visit livingstonfinancial.net or drop by 2050 West County Highway 30A, M1 Suite 230.