2012 was one of those years where some of the most outlandish predictions made by seasoned investors turned out to be wrong.
On review, it is probably safe to suggest that some of the seasoned pundits could have made their predictions with the hope that their name recognition alone would be sufficient to make their predictions actually happen. In hindsight, they proved particulalry inaccurate and perhaps we should breathe a sigh of relief if only that their mistakes serve to remind us they are human after all.
Having gone through so many collapses in recent years, why should any handful of for-profit pundits hold this level of market sway.
Getting it wrong on a grand scale
John Paulson, one of Wall Street’s most recognisable investment strategists was way off the mark in his prediction that the Euro would collapse into a sea of chaos spanning all the way from the straits of Messina to the Cliffs of Moher. While the year was certainly a messy one for the single currency, what Mr. Paulson failed to grasp were the primary factors that underpin the single currency…economics and history!
The Euro has survived for a variety of reasons, not least the effort that has gone into building the single currency to date. But this is not the only reason. Rising competition from China is also serving to underpin the need for a more competitive and dynamic EU. For this reason, the Euro instead of collapsing has been significantly strengthened through the consolidation of power to the European Central Bank, something that should have been in place from when the Euro was first launched but took a ‘crisis’ to facilitate…and it is this crisis action culture within Europe which cannot be ignored as it is precisely how modern Germany came into being in the late 1800’s.
Aside from Mr. Paulson, Morgan Stanley also got things wrong…massively wrong, and they got things massively wrong in areas where they should know better. Their prediction that U.S. stocks would decline was opposite to what actually happened. So, for anybody that may have been planning their 2012 investment strategy on the advice of Morgan Stanley, 2012 will be a year to forget.
Throughout 2012, banks and pundits demonstrated their own weakness for interpreting how government actions would influence markets. Unprecedented central bank stimulus in the U.S. and Europe sparked a 16 percent gain in the S&P 500.
In both Europe and the U.S., domestic political pandering masked deep rooted desires for long term stability, the driving force behind EU leaders who managed to agree measures that continue to protect the single currency. So too is this the case in the U.S. where even the most staunch opponents to a fiscal deal with the President proved no match for a deep rooted desire to protect the world’s leading economy.
Ultimately, pundits like Mr. Parker have admitted their own weaknesses. “We were wrong on our year-end outlook for 2012,” Parker wrote in a report on Oct. 22. “The spectre of nearly unlimited intervention from the ECB and the Fed seems to have created a more positive asymmetry than we anticipated.”
For individual investors, there is no escaping the fact that there are no simple solutions to a sound, long-term investment strategy. So-called experts get things massively wrong all of the time. To really enjoy success, one must either take up market watching full time or find a proven investment planning manager that can do the job for them. But before doing so, understanding the fee structure and how it will impact long-term returns is essential. In other words, agree the charges you will be paying and understand how they will add up over the years to come.