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Nick Bamford: Predictions guessing game has no future

Nick Bamford

Tony Blair once said: “I never make predictions. I never have and I never will.” That contradiction always tickled me. But we are all in the business of predictions, are we not?

Last week I attended a review meeting with a client and his appointed discretionary fund manager. The client was looking for some reassurance that his pension pot invested with that DFM and significantly exposed to equities might achieve a better return than that of the last 12 months.

As part of a wide-ranging conversation on the state of the world’s economies and markets we got to the predictions game. Using the FTSE 100 as a blunt instrument to determine what good and bad looks like, the DFM told the client he felt there was a real chance it could be at 5,000 or 5,500 by the end of the year.

Leaving aside the point there is quite a large gap between those two numbers, I wondered what the value was in that particular prediction. Sure the advice was reasonable: the client will not be accessing his pension pot for a decade or longer, so remaining invested made real sense. What is more, an equity price fall actually, to some extent, plays to his advantage, seeing as he is in the accumulation stage of his retirement planning.

But that is not the point. Are there not just too many variables for any kind of prediction of this type to have real meaning? Oil prices, Chinese inflation and consumption, UK membership of the European Union, US interest rates and another long, hot summer of Greek tragedy. Who knows what the short-term future holds?

What value is there to our clients in trying to predict the level of stockmarkets three, six or 12 months hence? In truth, most are investing for the long term so the level of the FTSE 100, blunt instrument that it is, really has little bearing on their future wealth.

I cannot think of one client whose portfolio is invested exclusively in equities, and absolutely none invested entirely in FTSE 100 companies. Every single one has a diverse portfolio containing multiple asset classes. More importantly, every single one is fully aware the value of those portfolios can fall as well as rise.

Trying to predict the level of an index is the start of a slippery slope to trying to time the market. I do not know about you but I take with a pinch of salt anyone who claims to be able to consistently do that. I subscribe to the view it is time in a market, not timing a market, that makes more sense.

So if I am asked to predict the future I am going to cover all the bases. Where will the FTSE 100 be in 12 months? I confidently predict it will be higher… or lower… or maybe even the same. But then I do not do predictions. Never have, never will.

Nick Bamford is executive director at Informed Choice

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Comments

There are 5 comments at the moment, we would love to hear your opinion too.

  1. Agree Nick. It is about the ‘plan’ itself and whether the client is on track to meet their goals, rather than short term movements that are part and parcel of investing.

  2. Could not agree more.
    I have fairly recently in another forum made reference to an article in the TImes newspaper, January 5th, by the economics editor of Sky News. Referring to the price of oil and to interest rates over the past few years he asserts “…the economists didn’t have a clue”. And the article is headed “Put Your Money on the Experts Getting it Wrong”. Beyond a few general reflections, anyone who actually tries to predict our economic future with any certainty is a charlatan.

  3. headbelowthe parapet 19th February 2016 at 3:52 pm

    There are three kinds of prediction: vague, lucky or wrong

  4. Totally agree. But how does this square with financial advice? If a product or course of action is recommended can anyone say with certainty that it will turn out to be the best course of action. I’ve banged on about this for 30 years but all advice can achieve is to help the client make an informed decision.

  5. Snap. I predict I will die. I think I have a good chance of winning that bet. I don’t bet though.

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