“There are known knowns. These are things that we know. There are known unknowns. That is to say, there are things that we know we don’t know. But there are also unknown unknowns. There are things we don’t know we don’t know.” (Donald Rumsfield)
So we head into November with two months to go until 2016 comes to an end. All three quarters this year on the S &P 500 this year have produced a positive return, six out of the last seven times this happened, the fourth quarter followed suit. With a slight pullback of just under 2% in October, if this pattern continues, we can expect a good last couple of months
Dow Jones -0.9% +3.1%
Nasdaq -2.3% +2.3%
FTSE +0.8% +11.4%
Nikkei +5.7% -8.6%
Shanghai +3.5% -12.2%
Dax +1.5% -0.7%
So how has the year fared for you so far? Should be all good unless you were over exposed to Asia. Whilst I appreciate the year has still a couple of months to run and there is a rather big decision to be made by the American people next week which could have an impact on how we finish , will 2016 be what was "expected"?
Who tells us what to expect, who can predict what shares will go up, what will go down, which market sectors will flourish, which will stumble? Analysts maybe??
Let's look at these analysts and what they said about their expectations for 2016, Albert Edwards of Soc Gen suggested we are in for a financial crisis worse than 2008 and the stock market to fall by 75%....Don't think its going to happen Bert...
The RBS analysts (interesting how a they appear to be a collective, surely some must have opinions that differ, perhaps its a democracy / average ) suggested a 20% decline and oil at US$16 a barrel, again I don't think so.
For every one of these negative opinions there is a contrary view, which is why we have "bulls" and "bears" in the market, so is the whole predictions game really a futile exercise and how do you decide who you think will get it right and who will get it wrong?
As investment professionals, be it analysts or wealth managers, our job is to make judgments based on information and how we interpret that information. Its also about finding a strategy of when to take profits, when to cut losses. Often using cyclical data comes into forming this strategy but never do I try to predict where a market or a share price is going.
Those who are invested with me know I always recommend Terry Smith as a fund manager Below is a piece from Terry which I think shows why his philosophy is so successful. I have shamelessly stolen the headline quote to use in this piece to highlight why attempting to predict the future is just a pure game of chance.
I am always happy to hear stories when people got involved in tech start ups, some fancy hedge fund or forex derivative that they had and made them 100s of % profit. Perhaps they are then not particularly interested or impressed by by target of 7.5% per annum growth. I absolutely agree that there is a place for these types of high risk / high return products but its gambling. I'm not against gambling, as with most people I enjoy a little flutter from time to time by like my father always told me, only ever gamble what you can afford to lose and you wont go far wrong.
None of us can afford to lose our savings / retirement pot which is why I do not gamble with it nor try to predict what will happen. Understand the companies you are buying as Terry says and / or use professional help.....my door is always open.
And even if you are getting it right most of the time, making forecasts can still be a thankless task. Ask Michael Fish pictured. Michael would have correctly forecast the weather thousands of times over, yet he will be most remembered for the one he got wrong. On the eve of the great storm in the UK, 15 October 1987 he confidently stated
"Earlier on today, apparently, a woman rang the BBC and said she heard there was a hurricane on the way... well, if you're watching, don't worry, there isn't!"