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Why You Should Stay Clear of Market Forecasts

Published 01/18/2023, 07:03 AM
Updated 07/09/2023, 06:31 AM
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  • Goldman Sachs predicts the S&P 500 at 4,000 by the end of 2023 in its best-case scenario
  • Last year, the bank missed its year-end forecast by roughly 25%
  • Here's why the retail investor should avoid clinging to such predictions
  • Yesterday, Goldman Sachs came out with yet another prediction for the S&P 500 index. It claimed that the index could be at 4,000 points in case of a soft recession scenario and at 3750 (passing through a collapse to 3150) in case of a hard recession.

    S&P 500 Path: Soft Vs. Hard Landing Scenarios

    After reading the report, I laughed for two reasons:

    1. Hysterical people saying, "then you should lighten up on stocks and stay cash" in the comments.
    2. The fact that these predictions are almost always wrong.

    Don't believe me? Well, then look at what Goldman Sachs itself predicted about the same S&P 500 index at the end of 2021:

    5100 points by the end of 2022 (the index closed at 3840, basically missing its forecast by roughly 25%).

    Jonathan Ferro 2022 Forecasts Tweet

    Does anyone still believe in market forecasts? I am disappointed. Many investors still have not understood that big banks and Investment funds play a different game.

    In a hyper-competitive world, where money today goes from one side to the other with a click, they must think short term because here profits and accounts are made every quarter (by the way, Goldman Sachs quarterly EPS 3.32 vs. 5.56 expected, net income -66% year-on-year, just saying).

    The retail investor, on the other hand (us), can only afford to think about their own game, which is long-term investing, diversification, accumulation plans, and reaching our life goals.

    If you don't understand this, you will always be at the mercy of wacky forecasts, perpetually chasing market ups and downs, and in a confirmation bias.

    It's a never-ending game; every day, a different forecast, report, and view come out, and we think that just because someone is considered an expert, they are better at predicting the future than we are.

    Use the forecasts at the bar with friends or in your WhatsApp group for a laugh, but remember that the actions that lead to market results are always the most straightforward and most trivial, provided that they are followed.

    Disclosure: The author is long on the S&P 500 index. This article is written for informational purposes only; it does not constitute a solicitation, offer, advice or recommendation to invest as such and is in no way intended to encourage the purchase of assets. I would like to remind you that any type of asset, is evaluated from multiple points of view and is highly risky and therefore, any investment decision and the associated risk remains with the investor.

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