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Accurate KiwiSaver predictions or a lucky guess?

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What is the easiest way to get rich quickly using the stock market? By selling high and buying low. So how do you do this? By using a magic crystal ball that can see into the future. It is the perfect solution. You will never make an incorrect decision as you already know the outcome. 

The only problem is that such an object does not exist. So if we cannot see into the future, the next best alternative is to predict it right? 

Expert Predictions

There are many predictions every day about what the stock markets will do. A quick google search of “best stocks to invest in” brings up almost 6 billion results. How do we know who to trust? Can we trust the experts? After all, they are the most qualified and the most knowledgeable about the financial markets. They know the fundamentals and can explain how different factors impact the markets, so surely they know best. But even then, they don’t always get it right.

Author and academic, Philip Tetlock decided to put experts to the test. Tetlock conducted a study where he asked social science experts to make predictions specific to their chosen field of study. The predictions were simplified into three categories;

  1. The status quo remained
  2. More of something
  3. Less of something

Overall, it was a pretty poor performance. Of the 82,000 predictions, he found that experts preformed worse than if they had just assigned equal probability to the three outcomes!

Stock Market Predictions

Over the past 10 years, there have been countless claims that the bull market will end and the market will drop. Each year for the past 10 years they have been wrong. But due to COVID-19, this year they are finally correct! Does this validate their ability to predict the future?

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A US advisory firm tested over 6000 expert predictions about the stock market. They found that experts were right only 47% of the time! In other words, they are pretty poor at predicting! Flipping a coin will give you the same chance of getting it right!

There is a well-known story in the investing world about blindfolded dart-throwing monkeys. The story goes that monkeys were given darts to throw at a list of stocks from the newspaper. The chosen stocks were then made into a portfolio and it outperformed both the market and portfolios carefully selected by experts! Should we forget all about fund managers and get a monkey to look after our finances?

Well no, obviously not.

Investing is a long-term game

In short, there is no 'quick' way to get rich using the stock market. The issue is not with experts but instead about predictions. There isn’t a big difference between a correct prediction and a lucky guess when it comes to the financial markets. 

The best way to achieve your financial goals is to have a plan and make adjustments to it as your situation changes. Do not change this plan based on a prediction of what the market will do! Financial plans are complex and take into consideration a variety of factors such as personal situation, required returns, volatility capacity, volatility tolerance and acceptable level of risk.

At National Capital we don't rely on predictions. We create KiwiSaver investment plans tailored to our client's situation. They are designed to withstand differing levels of market volatility to help client's achieve their investment goals. We monitor their KiwiSaver performance and remain in touch with our clients in case we need to adjust the plan based on changing circumstances. National Capital provides this advice for free to further our mission of helping a million kiwis become financially secure.

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