January is that wonderful time of the year when we all get a fresh start, a time to lose weight and get into shape. It’s another chance to make resolutions or just forward the ones from last year that you were never able to finish. January is also the time for economic forecasts and predictions for the stock market. This January was no exception. Given the dismal track record of past forecasts, it’s a wonder anyone bothers to pay attention.
The consensus estimate for economic growth in January 2008 was that the economy would grow by 2.7%. There were concerns about the housing market but apparently not enough to sink the economy. Perhaps this is why American humorist Evan Esar said, “An economist is an expert who will know tomorrow why the things he predicted yesterday didn’t happen today.”
Stock market forecasts go hand-in-hand with economic predictions. Presumably once you figure out what is going to happen with the economy, you can easily predict how the stock market will react to it. Barron’s recently published an article showing the mean prediction of the 10 stock market strategists and investment managers. Their survey predicts that the Standard & Poor’s 500 Index will rise by 11 ½% by the end 2012.
Instead of wasting your time reading forecasts and trying to decide who to believe, put your effort into planning an investment strategy that helps you reach your long-term financial goals. This strategy should include a broadly diversified portfolio that is properly allocated over the major asset classes. The last ingredient is the discipline to stick with your strategy no matter what happens during 2012. The one thing we can count on from the stock market this year is fluctuation. When that happens, remember this advice from Warren Buffet: “Look at market fluctuations as your friend rather than your enemy; profit from folly rather than participate in it.”