Stephen Bland advises against New Year predictions.
I always cringe at this time of the year in response to the torrent of dumb comment in the media that attempts to predict the future over the next year for individual shares or the market. I suspect that a large proportion of the writers of this stuff know that it is worthless, but feel they have to do it because -- in that time-honoured but contemptible reason -- everyone else is doing it.
Some of this stuff verges on the astrological with talk of a "January effect" and similar nonsense. You can probably imagine my views on astrology. I haven't a clue where the FTSE 100 (UKX) will be in a year, or in any other time period either. That derives from my belief that the market movement over the shorter term, including one year, is random.
I could partake in all this silliness just for the sake of joining the club and bash out an article saying I think the index will hit around 7,000 and that BP will nudge 700p by the end of 2013. Don't take that seriously, by the way. However, if it pans out like that, then naturally I'll be back at the year-end to claim prescience. But I take the Groucho Marx attitude to this particular club: the mere fact that so many people are writing this sort of material is enough to put me well off.
Shares and the market don't know it's New Year any more than poker chips or racehorses do, so there is no reason to believe that any particular performance will be achieved in the year beginning 1 January than in the 12 months beginning on any other date. I know it's traditional, but traditional doesn't make it right or logical.
We're talking money here, where logic should rule -- although that is not always the case for a lot of investors and commentators, it seems. This creates opportunities for those who do apply a more logical approach to the game.
Taking this further, there is no reason to prognosticate about particular performance over the forthcoming period of exactly 12 months, making the whole circus even more pointless. That's because very few people will hold an investment for exactly 12 months anyway. Almost all investors purchase shares or funds to be held for an indefinite period, ranging from less than a day for extreme short-term traders to their whole life, depending on their attitude to the activity.
The sell point, if you do sell your shares or funds, is highly unlikely to be determined merely by the time held but rather for a variety of other reasons. The sell trigger for value investors, for example, will normally be when sufficient value has evaporated in their estimation, and that is unconnected to any fixed time period like a year.
So don't expect from me "Five shares for the year ahead" or some such inane title as you might see elsewhere. I'm quite happy to pick out shares from time to time as readers will know, but I won't do it just because it's New Year or tie the choices down to an exact time period in which I expect them to perform.
Luck vs skill
As I wrote last week when reviewing the book The Success Equation, luck plays a bigger role with investing generally than is popularly supposed, judging by what's written constantly about the market. And in such situations, it is process as the author describes it, strategy as I term it, which determines whether you win or lose over time, with the big luck element ensuring a lot of fluctuation on the way.
The right strategy, if you are as certain as you can be that it is right, will win over time but cannot be judged over just one year and certainly not over a year beginning on a particular date. As most will know, my strategies are value share trading for capital profits and HYPs for income. And I am as certain as I can be that these are right, meaning successful, yet neither though can be judged on one year.
Whatever I say, though, I know that the New Year investment circus will continue and that investors will discuss these matters on bulletin boards and so on. Some will even claim that by calling it right a few times that they therefore have some sort of skill. That's possible but it's unlikely that they possess some. If loads of people toss a coin the same number of times with a 50/50 chance, then a few will show a large majority of heads or tails. That's not skill, it's just the way that the results are naturally distributed.
So this is my anti New Year message. Whether you are a value player or otherwise, ignore all that comment and don't even think in terms of one year beginning 1 January as far as your investments are concerned.
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> Stephen owns shares in BP.