A big announcement

Hi Reader,

Economist Kenneth Arrow was a weather officer during WWII.

Arrow's team was tasked with producing long-range weather forecasts.

Through their research, they concluded that the forecasts were no more accurate than random guessing.

But when they voiced their concerns to their superiors, they received the following response:

"The commanding general is well aware that the forecasts are no good. However, he needs them for planning purposes."

The response offers a great parallel to the investing industry’s annual tradition of providing market forecasts for the year ahead.

In today's email, I'm digging into market forecasts versus reality and what some of the best investors in the world have to say.

I'm also sharing a BIG announcement with everyone. 🎉

🎙️ But first...did you catch this weeks podcast episode? Listen to Financial Advisors (Part 1): What They Are + What They Do. You'll learn why the term 'financial advisor' is meaningless, the typical problems advisors help people solve and more!

More Than Money: Real Life Stories of Financial Planning

As of March 23, 2023, I will officially be a published author!

More Than Money is the first of its kind.

It’s a collection of inspiring true stories that reveal how real clients applied financial planning to achieve tangible results that changed their lives.

The book is being published by Harriman House -- the same group that brought us The Psychology of Money by Morgan Housel which has now sold 2 million copies.

My favorite part of this book is that 100% of net proceeds are being donated back to non–profit organizations dedicated to improving financial literacy.

I Need Your Help!

To motivate the Stay Wealthy community to support the book’s mission, I’m running a ‘buy one, give one’ campaign during the month of December.

Here’s how it works:

If you pre-purchase a copy of More Than Money for yourself, I’ll personally match your purchase and buy you a second copy to give away to someone in your life.

It could be a friend, relative, neighbor, student…whoever you think would appreciate it and benefit from it.

Want to Participate? Here is All You Have to Do 👇

Step 1 – Pre-order your copy of More Than Money before 12/31/22.

Step 2 – Send a screenshot of your purchase to book@youstaywealthy.com.

Step 3 – Look out for an email from my team in January. They will grab your mailing address so we know where to ship your second copy.

BONUS – While I can only commit to matching one book per person, if you’re feeling extra generous this holiday season and want to further support our mission, please consider pre-ordering more than one copy.

Thank you in advance for your support!

Market Predictions vs Reality

Before we consider the predictions for next year, it might be wise to review how the forecasters have fared this year as a cautionary tale.

Sam Ro, a great market commentator, made it easy for us by compiling the 2022 predictions from 14 notable “market experts.”

Their 2022 year-end price predictions for the S&P 500 ranged from 4,400 to 5,300.

Over 70% of them (10 of 14) predicted that the S&P 500 would end the year at 5,000 or higher. 😲

With the index hovering around 4,000, these experts are currently 0-for-14 with a few weeks remaining.

Not so good.

Though, as the market rally continues into December, you may be inclined to say, "There's still time."

For those who feel that way, note that many of these "market experts" have revised their predictions (some several times) throughout the year.

And for that reason, their initial year-end estimates are worthless even if a Santa Claus Rally ultimately proves them "correct."

💡 What is a "Santa Claus Rally?" The tendency for the U.S. stock market to increase during the last 5 trading days in December and the first 2 trading days in the following January.

Many who offered mid-year revisions cited unexpected developments as reasons for the change. Things like the war in Ukraine, the Fed's pivot, or inflation.

In other words, they had no idea what was going to happen.

(To be fair, not knowing what the future holds is not a failure because nobody does.)

If we’re honest with ourselves, we don’t know how the rest of our day will pan out, much less the next year.

But forecasters don’t seem to think this is the case.

The only way anyone can gather the confidence to offer a prediction is to believe they have some knowledge of the future (an oxymoron) that others don’t have.

Since it’s obvious that knowledge of the future doesn’t exist, then it’s intuitive that no matter how much data or research we consider...

...there is no way to guarantee an accurate forecast.

On its own, that should tell us all we need to know about the value of forecasting.

But that’s my opinion, so for good measure, I thought I'd share what some of history's greatest investors have said about forecasting:

Warren Buffett:

"We've long felt that the only value of stock forecasters is to make fortune tellers look good. Even now, Charlie and I continue to believe that short-term market forecasts are poison and should be kept locked up in a safe place, away from children and also from grown-ups who behave in the market like children."

John Templeton:

"In all my 60 years in the stock market, I never found anyone whose opinion of what the stock market would do next week or next month was worth heeding."

Peter Lynch:

"Far more money has been lost by investors preparing for corrections -- or trying to anticipate corrections -- than has been lost in corrections themselves.”

In Summary

Your financial plan is not dependent on us, or anyone else, correctly predicting the future.

Instead, I believe it’s much more prudent to prepare for a wide variety of possibilities making forecasting entirely unnecessary.

This being the case, I would encourage you to disregard anything the pundits have to offer as this annual forecasting charade continues.

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📖 Read last weeks newsletter: My Investing Framework

Stay wealthy,

Taylor Schulte, CFP®

Taylor Schulte