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Be Wary of Predictions

by in Financial Planning
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Warren Buffet, the famous American billionaire said, “I have never made a dime trying to predict the future.” There is a well known economist by the name of John Kenneth Galbraith that made the following statement, “The function of economic forecasting is to make astrology look respectable.”

To further emphasize how important it is to not rely on short term predictions, I found an article published in Barron’s dated January 6, 2003. In those days, there was a popular program on television every Friday night, called “Wall Street Week”. The popular host, Louis Rukeyser had a rotating panel of twenty two well-known investment experts. These names were some of the most respected in the business of investing. In the article, Barron’s showed what these experts predicted the Dow Jones Index and NASDAQ Index would do for the years 2001 and 2002. These predictions were made one year in advance. These were two significantly negative years in the market during the technology crash. Here were the highs, the lows and actual results of the predictions:

 2001 PREDICTIONS

Dow Jones NASDAQ

Highest Prediction 13,170 3,800

Lowest Prediction 11,400 2,250

Actual 10,021 1,950

2002 PREDICTIONS

Dow Jones NASDAQ

Highest Prediction 13,750 2,810

Lowest Prediction 10,000 1,700

Actual 8,342 1,336

 

Imagine, if you had invested based on any of these twenty two experts. You would have lost significant amounts of money and many people did.

Dr. Benjamin Graham, the renowned professor at Columbia University in the 1930s and 40s, was the creator of the value school of investing. His most famous student was Warren Buffet. One of his many famous statements was “In the short term the stock market is a voting machine and in the long term it is a weighing machine.” In other words, near term events and statements will cause the market to go up and down and have little to do with the fundamentals of business. In the longer term the quality of the companies will more closely determine the price of a stock. The point to take away from this brief discussion is to not become influenced by the pundits that are telling you what the markets are going to do in the short term. They will probably be wrong.

Vern Hayden has been a CFP (Certified Financial Planner) since 1978, and is considered a financial planning pioneer. He is the Founder and President of Hayden Wealth Management Group, a fee-based financial planning firm that offers a comprehensive range of services.


Vern is a regular commentator on several leading national news and financial television programs that appear on CNBC, NBC, Fox News, Bloomberg and PBS, including WealthTrack with Consuelo Mack. CNBC branded Vern, “Mr. Mutual Fund”, and has praised him as “one of the leading Financial Planners in this country” (Brenda Buttner, former Host of The Money Club). He is also a regular contributor to the financial press, including CNBC.com, TheStreet.com, the Journal of Financial Planning, and the American Association of Individual Investors Journal. His latest book, Getting An Investing Game Plan…Creating It…Working It…Winning It, was published in 2007 by John Wiley and Sons. Vern also conducts financial education programs on behalf of many companies and charities, and is a sought-after speaker at financial and industry conventions.


Active in financial planning circles for more than 40 years, Vern has been a board member of the CFP Board of Standards and has chaired the National Endowment for Financial Education, the former parent organization of the College for Financial Planning, which created the CFP™ (Certified Financial Planner) designation. He was President of the North Bay California Chapter of the International Association of Financial Planners (IAFP) in 1975 and Founding President of the Westchester/Rockland Chapter IAFP in 1987.


Vern has a Bachelor of Arts in Philosophy from Wheaton College with extensive graduate work from University of Southern California, American University, University of Oregon and New York University. He was also a Major in the U.S. Air Force. Vern hails from South Salem, NY, and is an avid handball player.


Vern Hayden can be reached at (203) 454-3377 or vhayden@haydenwealth.com.

Regulatory Disclosure: The information on this website has been obtained from sources considered reliable, but its accuracy and completeness are not guaranteed. This website is neither an offer to sell nor a solicitation to buy any securities. Vern Hayden and Gerard Gruber offering Securities and Investment Advisory and Financial Planning service through Geneos Wealth Management, Inc, Member FINRA/SIPC.  Investments are not FDIC insured. Investments are not deposits of the financial institution and are not guaranteed by a financial institution. Investments are subject to investment risks including loss of principal amount invested.