How to Perceive Market Predictions
By Michelle McKinnon, Financial Advisor
I’d like to discuss the kind of news stories we see every day, where big investment firms make predictions about the markets. In this article I’m going to focus on Goldman Sachs, not because I have any hard feelings toward them, but as a result of the “bold” claims they’ve made in recent months.
For example, the crashing of oil prices was all over the news at the beginning of 2016. So in February, Goldman Sachs came out with a statement saying they were extremely “bearish” on oil, meaning they believed prices would continue to go down and probably fall below $20 a barrel, due to global over-supply. Then in May, after oil prices had already rebounded and were climbing close to $50, I saw an article saying Goldman Sachs had become “mildly bullish” on oil. Well, of course. Once a downward trend has been reversed, anybody can say they’re now more optimistic than they were before.
Here’s another example: Earlier this summer, there was a lot of talk in the news about how the British pound sterling would decline sharply because of the “Brexit” vote. In fact, it did fall from about $1.60 to about $1.35 the day the vote occurred. Then an article came out a few weeks later where Goldman Sachs warned the pound could slide below $1.20. So again, all they did was comment on a downward trend that was clear to everybody by predicting it would continue.
These are the kinds of statements you’ll come across in the news, and it can be so hard for investors who may not know everything that’s going on and rely on articles to guide them. The bottom line is, you can’t. Unfortunately, big companies aren’t often called out for making pessimistic statements about obvious declines, or waiting until after a recovery has occurred to make optimistic statements.
So my advice is, definitely read those articles because they’re important for informational purposes. But don’t assume everything you see in print is fact, or that any institution has the ability to predict the future. Because the last time I checked, nobody has figured out how to do that yet. Investing is about the long-term, so don’t let those articles scare you in either direction.
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