Why 2015 Share Market Predictions are Moot

As we approach the end of the year, the game of predicting next year’s share market performance has begun. Top Wall Street strategists are putting forward their target levels for the 2015 share market, with most predicting double digit returns. The 2015 predictions sound promising – the track record of the “experts,” not so much.

We’ve heard that story before

Before you rush to place your money in the share market based upon the guidance of the “experts,” consider these two quotes shared by Jason Zweig, an award winning financial columnist for the Wall Street Journal. In his book “Your Money and Your Brain”, Zweig shared the following findings:

Every December, BusinessWeek surveys Wall Street’s leading strategies, asking where stocks are headed in the year to come. Over the past decade, the consensus of these “expert” forecasts has been off by an average of 16%.

According to money manager David Dreman, over the past thirty years the analyst’s estimate of what companies would earn in the next quarter has been wrong by an average of 41%.

Zweig’s finding suggests that the probability of getting share market predictions right may be no better than a flip of a coin. When we go into the details, it gets worse – “expert” forecasts were in fact often off by as much as 16% on average. With forecasts off by double digits, this would render next year’s “double digit” returns pretty much moot.

Analysts are no better off in estimating quarterly earnings for companies as well, being off by as much as 41% on average. With this this level of accuracy, it might be better if we simply stopped trying to predict what happens next.

Foolish take away

Nobody knows where the SDPR STI ETF (SGX: ES3) – a proxy for the market barometer, the Straits Times Index (SGX: ^STI) – will be trading at next year. We would be better off continuing to focus on finding the best companies for our portfolio and studying it for the long term. My fellow Fool Morgan Housel may have expressed it best when he said:

You have no control over what the market will do next. You have complete control over how you react to whatever it does.

I couldn’t have said it any better. To keep up to date on the latest financial and stock news, sign up for a FREE subscription to The Motley Fool’s weekly investing newsletter, Take Stock Singapore. It will teach you how you can GROW your wealth in the years ahead.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore contributor Chin Hui Leong doesn’t own shares in any companies mentioned.