Perspectives

TSP Charts: 2019 Forecasts

So the election is old news and the market will start pricing in 2019 trends and expectations soon.  The real effects of those expectations will not set in until after Christmas because of the end-of-the-year Santa Rally usually starts just prior to Thanksgiving.

If this period is weak, watch out in the new year.

In the meantime, I am waiting on the edge of my seat for the 2019 wall street “expert” forecast for the SP500 index.  Why? Looking back on this day in 2007, they made their “expert” wall street forecast for 2008.  You know where this is going, don’t you…

expert forecast2

 

A picture is worth a thousand words, so to save some typing…

the forecast

The SP500 ended 2008 around 900 or 41% below the lowest forecast

Yes, wall street never forecasts rain – sunny skies or partly sunny every day and every year.

And guess what, they are right 72% of the time.  That is a pretty good track record, right?

Buy and Hold November 2018

The market is in a BULL or rising market 72% of the time.  Of course, it gives back most or all of those gains the other 28% of the time.

The buy and hold types point to the fact the market always comes back and breaks even or goes higher.  I am pointing out that the market has always given back most of the gains in short order. You only have to miss half of the bear market to blow away the buy and hope strategy.

Okay, we all know the market finally broke out to new highs after 13 years in 2013.  But we have not seen the other side of the mountain yet.  By valuation methods that are highly correlated to long-term returns, the next bear market should end up well below those peaks in the chart above.  So the hard core buy and hold types might have to wait over 20 years to declare victory.

“But what about dollar cost averaging?  When the market goes down we are getting more shares for our dollar.”  Yes, I know the academic theory.

The assumption here (which has been valid over the very long term) is the market always ends higher.  Which means it needs to end high before you retire and have to start spending it.  Dollar cost averaging does not work in your favor in a declining market or in a sideways market as seen above.  The slow market topping process means you actually buy more shares at the top than at those quick bottoms.

And remember, that the market always comes back and ends higher is the assumption

Japan waits

Japan waits

The challenging part of the equation is that you have to sell somewhere near the highs when the market is still in its euphoric state. You know, peak expectations when retail investors are still all in.

The problem is most people have a hard time selling once the market has pulled back 15% or more, which is usually where it is before it plunges further.

Knowing when the party is over is not easy.  You really need someone not drunk on wall street’s drool looking out for you.  And it’s getting late.

 

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Categories: Perspectives, TSP Charts