Every January, USA Today asks the “best minds” in the financial services industry for their thoughts on how the S&P 500 will do.
As you can see below, their predictions were less than stellar in 2008.
2008 Predictions for the S&P 500
- Abhijit Chakrabortti (Morgan Stanley): 1520
- Richard Bernstein (Merrill Lynch): 1525
- Stuart Freeman (A.G. Edwards): 1575
- Rod Smyth (Wachovia Securities): 1590
- Thomas Lee (JP Morgan Chase): 1590
- Tom McManus (Bank of America Securities): 1625
- Abby Joseph Cohen (Goldman Sachs): 1675
- Tobias Levkovich (Citigroup): 1675
- Jason Trennert (Strategas Research Partners): 1680
And the real result? The S&P 500 began 2008 at 1468 and ended at 885
Source: USA Today. 2008 predictions for the S&P 500. January 2, 2008.
2008 was an unusual year, no doubt.
But if “expert strategists” can’t gauge even the ballpark performance – let alone the direction — of a single index right, how much confidence can we have in their ability to build a quality portfolio?
Need further confirmation that active management creates significant risk?
Check out their ability to choose successful stocks: USA Today asked five prognosticators to select their top 5 stocks for 2008.
Their top picks returned -44% in 2008 … easily outpaced by the S&P 500′s -37%.
This track record sends a very important message to investors: you shouldn’t depend on what these experts see in the crystal ball for 2009. In reality, flipping a coin would likely offer you the same level of accuracy.
While markets can be chaotic and unpredictable in the short term – as we are experiencing now — over the long-term they are remarkably efficient, and almost impossible to beat.
Resilient investors make the choice to follow a prudent, diversified, consistent approach… and stay the course.
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