Predictions – a loser’s game?

"It is difficult to make predictions, especially about the future" is a quote which has been attributed to many individuals across different fields of life including sport, science, philosophy and literature. However, we feel that it is particularly pertinent to the world of investment.

In the lead up to the recent EU referendum there was a long queue of politicians, economists, financiers and journalists, who were saying with great authority what would happen to the markets as a consequence of either result. As it has turned out, and despite the great number of predictions, both the result, and the subsequent reaction of the markets, have come as a surprise to many.

The headline UK index, FTSE 100, jumped 5.13% in the week following the vote, and has gone onto return 13.56% in the subsequent four months; whilst UK investors in the international index would have seen returns of 10.84% in the first week and 24.88% in the four months afterwards. Anybody who was out of the markets awaiting the result would have missed out on these returns, and more importantly, when would they want to get back into the market? When there’s more certainty?

People often use uncertainty as a reason to hold off from making investments. However, when is there ever any investment certainty? Unexpected events happen all of the time, and there always seems to be another big world event on the horizon. Over 90 million trades take place every day on average, which serve to disseminate  all available information. So, anything that has already happened is already accounted for. As soon as something new happens, the consequences are assessed and reacted to immediately by many market participants.

Over the years, markets have provided positive but erratic returns. Investors reacting to short term events will often suffer from the periods of loss without enjoying the success of the gains.

We would encourage long-term investors to accept the fact that there will be volatility in the stock markets. If you want to benefit from the potential returns, being exposed to the sometimes very sharp dips is the price you have to pay.

At Moore Stephens, we mitigate some of the volatility by recommending highly diversified, structured portfolios which are geared towards investor’s needs and long-term risk profile. Although to benefit, you need to shut out the short-term noise – which is not always easy!


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Bob Linweood

Well written sense, Stephen, with gratifyingly good syntax - product of proper education!

Thinking clients will totally agree - those who prefer the point and squirt approach should watch and perhaps learn.