Ignore the new year stockmarket predictions

Analysts have rated more than 70% of stocks in the S&P 500 as a “buy” or “strong buy” rating. The only trouble with that is that analysts usually get it wrong.

Bad news, says Lex in the Financial Times. "The bulls are back." More than 70% of stocks in the S&P 500 have been given a consensus "buy" or "strong buy" rating. Only Campbell Soup has been deemed a "sell". The trouble is that analysts usually get it wrong.

Just before the financial crisis, analysts were piling up buy recommendations, but once prices were actually at rock bottom, in March 2009, they "were screaming" sell. Since 2007, if you had gone against the Wall Street consensus, you would have "saved or made... a lot of money over the next six months".

It's not just shares analysts are also lousy forecasters of year-end index levels. One study of S&P 500 predictions made by 22 strategists at major investment banks between 2000 and 2014 revealed that, on average, they were off by 14.6% a year. They didn't foresee a single negative year, including the 2008 slump. As for macroeconomic forecasters, the International Monetary Fund, the European Commission and the US Federal Reserve all missed the global financial crisis. Analysts are prone to a herd mentality. They try to keep their predictions in line with the rest, because if everyone gets it wrong, nobody gets fired. They are also too bullish because predictions are part of their marketing efforts to drum up more investment. Take 2019 forecasts with a bucket of salt.

Recommended

Five online retail stocks to diversify your portfolio with
Share tips

Five online retail stocks to diversify your portfolio with

Professional investor Tancredi Cordero, founder and CEO of Kuros Associates, selects five of his favourite online retail stocks to buy now.
18 Jan 2021
Why investment forecasting is futile
Investment gurus

Why investment forecasting is futile

Every year events prove that forecasting is futile and 2020 was no exception, says Bill Miller, chairman and chief investment officer of Miller Value …
18 Jan 2021
Why investors should beware of India’s surging stockmarket
Emerging markets

Why investors should beware of India’s surging stockmarket

The BSE Sensex benchmark index has soared by 90% since March, largely driven by foreign investors. But India's bull market is very vulnerable.
15 Jan 2021
US stocks are obviously in a bubble. But is it a rational bubble?
US stockmarkets

US stocks are obviously in a bubble. But is it a rational bubble?

Everyone wants to know if the US stockmarket is in a bubble. But that is the wrong question, says Merryn Somerset Webb. Of course it’s a bubble. The r…
14 Jan 2021

Most Popular

Prepare for the end of the epic bubble in US stocks
US stockmarkets

Prepare for the end of the epic bubble in US stocks

US stocks are as expensive as they’ve ever been. How can you prepare your portfolio for a bubble bursting?
18 Jan 2021
Bitcoin: fool’s gold or the new gold?
Bitcoin

Bitcoin: fool’s gold or the new gold?

With bitcoin hitting new highs last week, and close to becoming a mainstream investment, is it really gold for the 21st century?
15 Jan 2021
It's not just the UK – we're seeing pandemic housing booms across the globe
Property

It's not just the UK – we're seeing pandemic housing booms across the globe

Soaring house prices aren’t just a UK thing, they’re a worldwide phenomenon. And it’s no coincidence – the underlying cause is much the same. John Ste…
18 Jan 2021