Michael Taylor reminds readers that market predictions are worthless. Always picture a...
Traders work on the floor at the New York Stock Exchange in August. Avoid prognosticators who claim the know how markets will perform in the future, Michael Taylor advises.It’s silly season for finance and economics writers — when members of what I call the financial infotainment industrial complex decide that year-end is when they should issue predictions about how markets will perform in 2023.
One tendency is anchoring bias. When presented with a number, we tend to anchor future number guesses around the first number. In practice, this means that if the stock market went up 10 percent last year, future predictions tend to cluster near “up 10 percent,” even if down 12 or up 18 is just as likely.
I responded to an emailed Vanguard Brokerage poll this past week, asking me questions about my guesses on the direction of stocks, bonds and U.S. economic growth in the coming year. Because I’m a savvy knower of behavioral finance theory, I suspect that Vanguard does not want this data from clients in order to improve its investing perspective or style. Rather, it wants to measure the breadth and extent of predictive errors that its clients make when envisioning the future.
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