“As the first week in January goes, so goes the rest of the year.” This quote is bantered around at the beginning of each year and closely watched to help give a clue on what the year will bring to stocks. Another indicator has to do with the second year of a second term President regarding the market’s potential. The problem is if you tend to follow or put faith in these types of indicators, which ones of the virtual dozens do you follow?
Economists and market analysts are besieged with requests for their predictions for markets each new year. The really smart ones will admit that while they have general opinions, trying to predict performance with any level of certainty is not possible.
If we look at just the past 5-6 years, some experts that ventured into the prediction arena suggested the following:
In 2008 housing prices were projected to continue to fall for the next 5-10 years and most likely never recover to their previous values. Result: Values stabilized and rebounded nicely since.
- In early March 2009, the consensus was stocks had broken through major support lines and would continue to free fall. Results: March 9th was the market bottom and prices have more than doubled to reach new highs once again.
- In 2012 gold dealers were projecting gold prices to rise from the price of $1,600-$2,000 per ounce to over $5,000 per ounce and that it would be the only currency accepted once our dollar devalued to zero. Result: 2013 was one of the worst declines in gold prices in history with prices falling 30% from their highs to the current $1,240 per ounce. New levels of support for the precious metal are being lowered to the $900 per ounce area.
These are just a few examples of getting caught up in the emotion of the current fad in investments. Of course, we left out the bubbles in the technology sector in 1999 and the dot.com bust in 2001. After each one of these instances where a specific investment area was hyped to be the next greatest thing, the euphoria busted and those caught up in the emotion lost large sums of money. Most importantly though, after each of these busts took down the overall market for a while, prices rebounded as investors turned their attention back to the old reliable strategies of finding and buying value in companies instead of hype. And in every instance, including the most recent, values rose to new all-time highs.
In 2013 there was little predictability as to how all of the various markets throughout the world fared. U.S. equities performed better than any year since 1997. Certain international markets that were almost dead, (Greece, Spain, etc.) rebounded strongly. The previously strong emerging market countries such as Brazil and India did not continue positive returns. Bond funds and Real Estate Investment Trusts (REITS) were hurt by the fear of interest rate increases by the Federal Reserve. U.S. Farmland continued its climb in value even as commodity prices fell from the previous year.
As January comes to an end, so hopefully will all of the references to the various market predictions. Those of us with many years of experiencing the fads and shocks that occur without warning know that it is impossible to consistently know the direction investments will take. One thing that we are quite confident in is the probability of new market highs being reached after whatever debacle temporarily causes prices of investments to drop.
Continue investing in what you know works over long periods of time and refuse to be distracted by promises of quick profits on the newest fad of the year.