Good morning & happy Monday!
In looking at the weather forecast this week ahead I think we can certainly say that summer is here.
I was thinking about forecasting and predictions and how sometimes they are not super helpful or accurate. On top of that they can so often times be misunderstood.
For example, let’s say there’s a 10% chance of rain every day for the next 10 days. Does that mean we are guaranteed rain 1 in 10 days … of course not. It could rain zero times during that 10-day period of time or could rain multiple times.
Or what about the forecasting about where the Chinese rocket would land a few weeks ago… there were projection models all over the place, anywhere from hitting a major city to landing in the middle of the ocean to burning up in the atmosphere and never even hitting earth.
How could we fail to mention coronavirus and all the projections involved in the global pandemic. On February 24, 2020 Nancy Pelosi went to San Francisco and stated “That’s what we’re trying to do today is to say everything is fine here. Come because precautions have been taken. The city is on top of the situation.” The very next day the CDC said COVID-19 was heading toward pandemic status. Two days after that, February 27, 2020 Donald Trump stated “It’s going to disappear. One day – it’s like a miracle – it will disappear.” Two weeks later, March 13th President Trump declared COVID-19 a national emergency and we all know what transpired from there. Needless to say, Nancy Pelosi’s and Donald Trump’s early assessments of the situation were quite a bit off.
That leads me into a few thoughts on market / economic forecasting. At best I would put it in the camp of minimal value and at worst … total and complete garbage. Let’s use the recent coronavirus market downturn as an example. When did the market downturn start? February 20th … before Pelosi or Trump statements referenced above. When was the bottom? March 23rd … a mere 6 business days following the official national emergency status declaration. What??? Check this out:
- February 19, 2020: S&P 500 hits all-time new high at 3,386.15 … how many coronavirus cases in the U.S? 19 cases.
- On March 23, 2020 there were a total of 31,573 cases of coronavirus in the US and the S&P 500 closed at 2,237.40.
- August 18, 2020 the S&P 500 hit a new all-time high of 3,389.78 … what was the U.S. coronavirus count? 5,354,013!
- Today the S&P 500 stands @ 4,155.86 and the total coronavirus U.S. cases are 32,933,337 … not a single forecast predicted that!
How helpful were all those financial forecasts? How much value was added to your economic life because of their projections? My personal observations lead me to believe that paying a lot of attention to forecasts and projections just adds anxiety to one’s life, but does not add value.
Economist John Kenneth Galbraith (1908-2006) once stated “The only function of economic forecasting is to make astrology look respectable.” I tend to be in agreement with this thought process.
At Intentional Wealth we stick to our core belief and values that our clients’ financial goals will dictate their plan and their plan will then dictate their portfolio … it will not be dictated by some forecast or projection.
It is a true honor to serve you & your family!