Two strong opinions have been at loggerheads recently:
The first says, ‘the end of the world is nigh’, and that inflation, interest rates and unemployment are about to skyrocket. This prediction is often couched in terms of gloom and doom for markets.
The second points to the US, which looks like spending over $9 TRILLION in just ONE YEAR fighting the coronavirus. This is a massive amount of spending on any scale, (the cost of WW2 was c. $5 trillion in today’s money). This prediction is often couched in terms of the market soaring.
The reality is that one, both or neither of these predictions may be correct, and even if an investor were to correctly predict one or more of these outcomes, it is another skill entirely to make money out of the prediction.
So - what are readers to do in this state of confusion?
The reality is that there are always forecasts of the market doubling or halving in value; in modern times, social media and real-time information have made these views more prominent. Very few people will read an article with a headline “everything is OK”.
The short-term future of indices, currencies, interest rates, unemployment etc. is unknowable; whilst wise investors do not ignore these indicators, they do not let short-term forecasts dictate their long-term investment decisions. History is littered with incorrect and value destructive economic forecasts, and they should be discounted accordingly – especially when provided by an ‘expert’.
Investors should review their portfolios in terms of the companies they own. They should understand where the company is likely to be, (in business, not share-price terms) in 1,5 & 10 years. They should have a realistic understanding of what can go wrong with businesses and keep or alter their portfolios accordingly.
Reading predictions of gloom or boom is an unwise use of time and energy. Undertaking a review of companies in a portfolio is a wise use of time and energy. It may not be glamorous, but it is smart.