Great Titchfield Street, London -- There are many good things and bad things about the Christmas and New Year period. Turkey with the trimmings? Now that's a good thing! Mulled wine? Not so sure, depends what mood I'm in. Predictions of where the FTSE will finish at the end of next year? Uh oh. Good for column inches, bad for your portfolio.
It's amazing the pundits still bother to be honest. But every year, each major investment house trots out a figure for where it thinks the FTSE 100 will finish at the end of the following twelve months. Usually it is the current level plus around 10%, given that this approximately represents the long-term growth rate of the market. Most of the time, the market will move anywhere between -20% and +30% in a year. But in one of out every five years, the market has moved by even more than this wide range.
It would be nice if we had some way of knowing what the next twelve months will hold. But it just isn't going to happen. Just look at the outcome of last year's predictions for an indication. At least you can't accuse these people of being bad sports. Every year, they come back for more and they seem quite happy for the journos to snigger at their previous inaccuracies. It's harmless fun really, although there is the danger some people may fall for the hype and even make plans based upon these guesses.
Despite some people's claims to the contrary, it's impossible to accurately, and consistently, predict the short-term direction of the market. It has always been so and it's difficult to see that changing. In fact, if it wasn't, markets would be obsolete. You can only make a best guess. But never forget that it is just a guess. The average of everyone's guesses is useful only to the extent that it gives you a vague indication of how everyone is feeling. The combination of people's moods, unexpected events and the fundamentals of valuation are basically what determines market prices at any one time.
So how can predict the FTSE? You can't. So it makes sense not to waste your time trying. Pass the turkey please!
More: The Odds Favour Investors
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