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Investment Predictions Often Do Not Come True

Investment Predictions Often Do Not Come True

July 5, 2021

Using predictions to make investment decisions can lead to disappointing outcomes, writes Peter Watson.

Making investment predictions can be dangerous.

A rhetorical question. Looking back to last year in March, would an investor liked to have predicted the pandemic was coming?

With the knowledge of a pending COVID-19 crises, most investors would have sold all their stocks. Putting the economy on hold would be damaging for business. Thus sell your stocks.

As it turned out the stock market set several records for gains. Yes, there was a brief decline but after that stock markets soared.

Predictions in sports are as futile as with investments. A few months ago, many of us predicted that the Toronto Maple Leafs would at least get to the semi-finals.

Others predicted a birth in the finals and how the best forwards in the sport could finally bring home the Cup. A first since 1967.

Not many were surprised when we were up three to one in the first round of the playoffs. The Montreal Canadiens were not expected to make post-season play. They were not a good team.

Whoops. There goes another prediction that went terribly wrong.

The Habs won the series, and our season was over.

Let’s fast forward. The Habs are in the finals. No one expected that.

Predictions are great when it does not matter. Sports is a good example.  I always predict the Leafs will have success. Call that a home team bias.

Predictions used when investing can be dangerous. We have a long history that those that use predictions to invest have poor results.

This information is provided by firms that track investment performance and by academics that study investing.

Our recommendation is to follow an evidence-based approach when investing.  Articulate your investment goals, build a portfolio that is strongly diversified and has low costs.

Predictions are wonderful when they work. Often, they do not.

Peter Watson is registered with Aligned Capital Partners Inc. (ACPI) to provide investment advice. Investment products are provided by ACPI. ACPI is a member of the Investment Industry Regulatory Organization of Canada. The opinions expressed are those of the author and not necessarily those of ACPI. Peter Watson provides wealth management services through Watson Investments.