Something I always look forward to at the start of the year is investment analysts providing their price targets for the following year.
The reason I look forward to it is because of how ridiculous it is.
Stock markets are weird, and their short-term movements often don’t make any sense. They can move wildly up or down for seemingly no reason.
Stock markets are also complicated. They’re affected by microeconomics, macroeconomics, geopolitical conflicts, and the sometimes-capricious emotions of investors all around the world.
The fact that analysts try to predict, to an exact dollar amount, the value of the S&P 500 at the end of the year is absurd.
At the end of 2019, when these analysts were making their predictions for 2020, did any of them foresee Covid-19 completely shutting down the world economy? And if you had told them that a pandemic would cause the shutdown of the global economy, how many of them would have predicted that stock market returns for the year would be positive?
The lesson here is that you need to accept some short-term uncertainty in the market. Over long time periods, stock markets are relatively consistent, and predictable. Trying to make short-term market timing calls is not a sustainable strategy for long-term success.
Warren Buffett is arguably the greatest investor of all time. His success hasn’t come from guessing what the stock market will do in the next week, month or year. He embraces the fact that he has no idea what the stock market will do in the next year.
I’d encourage everyone to be dubious of anyone making short-term forecasts. The more precise the prediction, the more skeptical you should be.