2016 Forecast: The Experts Will Be Wrong

We’re in a season when experts and pundits like to make predictions about what will happen next year.

But an interesting column found at Marketwatch.com casts doubt on the value of those predictions. “Stocks that were recommended most highly at the start of 2015 by the highly trained, highly educated, highly paid experts on Wall Street did worse this year than a bunch of stocks picked at random.”


Brett Arends added the real kicker. “And they did worse — a lot worse — than the stocks those same experts told you to avoid.” His data looks back over the past eight years and comes to a stunning conclusion. Imagine that you invested each year in the stocks the experts said to avoid. With such a strategy, you would have made three times as much money as you would have by investing in experts’ top picks.

This is not some fluke of the digital era or the after-effects of the 2008 financial meltdown.

In 1978, Harvard economist John Kenneth Galbraith claimed that General Motors was so dominant that it could no longer be constrained by either consumers or competitors. Galbraith, who served in four presidential administrations, believed that auto firms would never compete with each other because they shared a common interest in soaking the consumer by raising prices.

The nationally recognized expert also said that no other auto company would be foolish enough to take on GM. Why? “Everyone knows that the survivor of such a contest would not be the aggressor but General Motors.”

The auto giant’s market share was a remarkable 46 percent at that point. It never again reached such lofty heights. In fact, GM’s share of the market declined for 29 of the next 36 years, eventually leading it into bankruptcy and a government bailout. It went from selling 46 percent of all cars in 1978 to 35 percent a decade later, 29 percent a decade after that and just 17 percent in 2014.

What happened? Apparently firms like Toyota, Honda, Nissan and Hyundai didn’t read Galbraith’s warning. In 1978, those firms had a combined 8 percent of U.S. auto sales. Within a decade, that share had doubled to 17 percent and has since doubled again to 35 percent. In several recent years, Toyota alone has sold more cars worldwide than GM.

So, as you listen to what all the experts predict for 2016, retain a healthy skepticism.

The reason is not because the experts are stupid. It’s just that in a nation of more than 300 million people, there are far too many variables for any one person to predict.

Consider the 2016 presidential race as a great example. Nobody really has any idea who will win at this point. Political experts weigh all the things that they believe are important — demographics, money, connections, etc. A year ago, these same things led many to believe Jeb Bush was the clear frontrunner for the Republican nomination.

In truth, the state of the economy will matter more than all the variables the political pundits are obsessing about. So will the level of terrorist activity and public perceptions of Obamacare. The reason we can’t be sure who will win the election is because we can’t be sure how any of these fundamentals will play out.

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