Blocking out investment noise
Treat forecasts and forecasters with scepticism, would be our big take from our seventh episode of the podcast. Wherever you get your news from, whether it's social media, the web, or TV, you've probably seen forecasters and journalists making commentary on where they think the market is going and why. Why do they do this? Simply put, headlines that incite fear or panic generate clicks, and clicks generate ad revenue for the media company.
Most financial advisers worth talking to will tell you that they don't have a crystal ball that can predict where markets are going, but economists and the media love making bold predictions. So how well do they do? Here are a few examples of headlines and the following 12 months in the NZ share market.
2012 Otago Daily Times - "Middling year expected" - NZ Shares rose 24%
2013 Dominion Post - "Economic headwinds lurking" - NZ Shares rose 16%
2014 NZ Herald - " We're probably fully valued" - NZ Shares rose 18%
2015 NZ Herald - "Bull run near end of tether" - NZ Shares rose 14%
2016 NBR - "End of the golden run" - NZ Shares rose 9%
2017 Noted - "The easy gains for share investors appear to be over" - NZ Shares rose 22%
2018 NZ Herald - "The potential is for lower equity returns than last year" - NZ Shares rose 5%
2019 NZ Herald - "It's difficult to see what might turn the negative sentiment" - NZ Shares rose 30%
2020 NZ Herald - "Eerie parallels to the 1920s" - NZ Shares rose 14%
2021 NZ Herald - "2021 is shaping up for a year of recovery and rebound - NZ Shares fell 0.4%
2022 NZ Herald - "The NZ market is relatively well-placed heading into 2022" - NZ shares fell 12%
Looking at these atrocious track records, we would argue these journalists have no idea what they're talking about. Yet many investors see these articles and make investment decisions emotionally in response.
It's human nature to want to react to information like this, but we'd encourage anyone who is investing for the long term, to very simply, block out the noise.