Why 20-Year Market Predictions Aren’t Worth Your Time
by Alexander Green, Investment Director
Monday, March 16, 2009: Issue #956
“I have been taking Chris Martenson’s Crash Course,” writes a reader. “He believes the next 20 years for investors will be nothing like the last 20. It’s a pretty scary scenario. Can you refute his facts?”
I don’t know Chris Martenson and I haven’t taken his course, so I can’t refute his analysis. However, I really don’t think it’s worth anyone’s time to listen to 20-year projections.
Twenty years ago, the Soviet Union was occupying Afghanistan. Forget about how much Afghanistan has changed. Today there is no Soviet Union.
Who was predicting that?
- Twenty years ago, mobile phones were heavier and only slightly smaller than a football.
- The Internet – as we know it today – didn’t exist.
- We were providing weapons and technical support to a Middle Eastern dictator most Americans had never heard of named Saddam Hussein.
- A young black man named Barack Obama was just entering law school. In his wildest dreams, he could not have imagined what lay 20 years ahead.
Nor can Chris Martenson or anyone else tell us with the least bit of reliability what lies 20 years ahead of us now. Martensen may be a very smart guy. But, I’m sorry, the world just isn’t that simple.
20-Year Market Projections With Harry Dent – The Roaring 2000s Investor
My skepticism has nothing to do with Martenson’s pessimism, by the way. I was just as dismissive of economist Harry Dent when he published the “The Roaring 2000s Investor” in 1999.
In this bestseller, Dent argued that:
- Baby boomers saving for retirement – and other cast-in-stone demographic factors – made it inevitable that we were headed for an era of fantastic prosperity and booming stock markets for years to come. Describing himself as an “economic futurist,” he confidently predicted that the Dow would hit 44,000 by 2008. We now know he was off by 36,000 or so points.
- Dent also argued in favor of Nasdaq stocks and predicted “the technology revolution will favor Internet- oriented companies.” Within three years, the Nasdaq lost three quarters of its value and the leading index of Internet stocks plummeted 89%.
- Dent forecasted that Argentina would see “moderate growth until 2015 and then stronger growth into 2025.” No, Argentina would suffer a currency collapse and financial crisis followed by rioting, social unrest, and years of economic stagnation.
And so on …
It’s obvious now just how wrong Dent was. But back then most investors agreed with him. He sold hundreds of thousands of books and raked in millions as an advisor to top Wall Street firms, including Morgan Stanley.
The Great Bears’ Market Predictions
Today it is the great bears’ market predictions that everyone is listening to. We’re in a depression that will last for years and perhaps decades they tell us.
How could they know this? What kind of crystal ball – excuse me, “forecasting model” – do they have? And what is their track record when it comes to making predictions like these?
I can tell you. In almost every case, the super bears are individuals who have been saying much the same thing for decades or, like Henry Blodget who suddenly materialized as the celebrity cheerleader during the Internet mania, have mysteriously appeared on the scene with no history of success but a boatload of outlandish projections.
I’ve said it before but it’s worth saying again…
- Investment success doesn’t come from following the right predictions.
- It comes from following the right principles.
Forget Market Projections – Follow A Long-Term Investment Strategy
Some investors complain that principles like diversification, asset allocation and trailing stops haven’t worked. But investors who follow these principles have made out much better than those who haven’t. Moreover, you don’t judge a long-term investment strategy by short-term results.
As I noted last week, if you bought stocks after the market declined more than 50% during the 1930s, you made a lot of money over the next 10 years – and beat every other asset class over the next 20.
Yet now some bears are growling this will be even worse – and longer – than the Great Depression.
I don’t think so. True, the U.S. economy is in a bad way. But, eventually…
- The banks will lend again.
- Companies will hire again.
- Consumers will spend again.
- And markets will rise again.
Granted, I can’t predict the next 20 years either. Investors must always live with a certain amount of ambiguity.
But you have a choice. Either you follow time-tested investment principles or you fly by the seat of your pants (or by the seat of some guru’s pants).
Personally, I’ll take the former. As Patrick Henry famously said:
“I know of no way of judging the future but by the past.”
Good investing,
Alex Green
Today’s Investment U Crib Sheet
Eventually the papers will stop talking about the crash or the bottom, and focus instead on the recovery. Remember that Mr. Market is a forward pricing mechanism. It isn’t focused simply on tomorrow, or the day afterwards.
Instead, Mr. Market is focused on the months, years and decades of our future. And because the outlook for them is going to be considerably more positive than today, the markets will rise. It doesn’t matter if we’ve reached bottom, but rather that there are real values out there.
Why 20-Year Market Predictions Aren't Worth Your Time,Any investment contains risk. Please see our disclaimer.
18 Responses to “Why 20-Year Market Predictions Aren’t Worth Your Time”
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Alex, perhaps you should take Chris’ crash course. Your points are well taken, and quite consistent with Chris’s. Especially since he is firmly judging a future based on the past as you suggest by quoting Patrick Henry. Chris just lays out the facts; he is very careful to suggest that we devine our own future from them. Facts are clearly a better starting point than fiction – which, unfortunately, is common in today’s “news” and financial media.
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Alex does not accept that the World has been ROBBED by sophisticated thieves disguised as CEOs and the like, who are now being supported by the continuing coterie of corrupt or ignorant Politicians and Central Bankers,who are willing to keep them and themselves in office, by screwing the “lemmin” taxpayers.
What is needed is 1. Jail the crooks.
2. Demand Restitution and not release them till all funds are collected, 3. Compensate the injured and jobless meanwhile 4. Let survivors eat the worms.
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Thank you for a very sensible approach . No one . . REPEAT . . . no one really knows what to expect going forward even during the next 2 to 3 years , much less the next 20 . All the pundits and gurus have their own financial axes to grind and must make hay while the “gloom and doom” scenario is in full bloom .
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Alex
You are always a voice of reason. Thank you and keep up the great work.
Charlie
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Will Rogers had the best advice about the stock market. He said, “The way to end up with a small fortune in the stock market, was to start out with a fairly large fortune”. He said to buy a stock when it was low, and when it goes up sell it, and if it don’t go up, don’t buy it.
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Alex
I totally agree with your money management techniques and respect your ability in picking good stocks. However, I would like to respond to your criticism of Harry Dent. You make him sound like a wacko. In his books he says he has been consistently correct in determining the direction of a move but not the magnitude of that move. He explains that magnitude can’t be done accurately in a book because of events that occur after the book is written. After you finish the book he provides constant updates with emails just as you do. Those have been very impressive.
Don’t forget that your buy and hold “Gone Fishin” and “Perpetual Money” portfolios lost a lot and I will probably not make that back in my life time. However, people with higher IQs than either of us did not see that coming.
Regardless, I think you are very insightful. Keep up the good work!
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I agree totally with you Russ.
In fact, because of Dent and his predictions… starting with ‘the great boom ahead’ in 1993 that I read, I knew to be out of real estate investments well before 2010… and coming up to 2010, to be watching for a market that stopped making new hi’s on volitile news as an indicator to transfer all retirement funds in equities into guarenteed investments… all in prepairation for the change in spending of the baby boomers, etc.
I succeeded with both.
That ‘Gone Fishin’ portfolio and other buy and hold strategies similiar to it… have no exit trigger, incase of a market crash of this magnitude. Dent’s readers knew that you need an exit strategy to prepare for… 16 years ago.
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I only want to (re)quote a famous saying:
“Prediction is difficult, especially about the future.”
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Alex,
Chris Martenson has done an exceptional job of comiling data and assembling it in an intelligetnt and easy to understand format. He comments on Economics, Environment and Energy through the 20 chapters of his audio course. IMHO, Chris makes no attempt to suggest that he has a “crystal ball” or be a “guru” regarding future events. He has however done an exceptional job of illuminating a number of key issues that we will all face. I recommend the Crash Course to eveyone I know. http://www.chrismartenson.com
Thank you
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hi Alex,
nice article. i have another view point. dent saw the same data i saw but failed to understand it. it’s all about supply and demand of investors. we end up with a 36 year cycle that i have tracked back over 100 years. it has always worked with a minor shift due to interest rates. we have 6 to 8 more years to go on the downside. the important thing to do is remove inflation from the data then it is clear as a bell. if you are ever in the boston area, we could discuss this over lunch. i am a71 year old retired engineer. been investing for 45 years.
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As Patrick Henry famously said:
“I know of no way of judging the future but by the past.”
Alex,
Good article, interesting ending. Considering the aforementioned quote, are we to expect continued corruption on: wall street, the banking sector, the federal government (where has the SEC been), real estate, the automotive industry, etc.?
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I’ve been a reader of your investment research and information for years both via The Oxford Club and Investment University. I have always been impressed with your insight and generally have agreed with your point of view. I was surprised at your response to the reader who asked about Chris Martenson’s “The Crash Course” (www.crashcourse.com)
I hope by now you’ve had a chance to take a look at it. Martenson does not sensationalize or impose a partisan bias to his examination of the facts. His narrative is all-inclusive, and he makes the point very clearly that in his judgment, all the evidence points to a very serious economic downturn and perhaps a protracted recession. He explicitly does not attempt to predict the future, but does provide some useful tools for the average investor to preserve wealth in a downturn.
I think it was premature of you to assume that he was making specific predictions about the state of the economy in 20 years. Otherwise, keep up the great work and thanks for your insights and opinions.
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Thanks Larry, Brent C, Dann D and Jim for your replies! I have to say that I feel a bit vindicated now as I had emailed Alex requesting his thoughts (as I appreciate his investment insights) on the Crash Course, which most likely prompted the article. I was surprised that he didn’t bother to even familiarize himself with the Course before he fired off on what seemed to be a tirade on the matter. I took it personally at first as if I offended him with such a request. Such a insensitive response seems inconsistent for a guy who appears to live the life he writes about in Spiritual Wealth.
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Mr. Green you just gained my loyalty with this article. As an advisor I have always educated my clients about the strategies, and principles of investing. Such as the three d’s Diversify, Dollar cost averaging, and Discipline. These principles work through Bears and Bulls. It is kind of funny how when the bears are out the bull**** comes out to!!!
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Hi Alex,
Interesting article, however i disagree with you concerning Dent. Everyone fully realizes that his (or anyones) exact predictions are very unlikely to come true, after all no one has a chrystal ball… however his logic and stats concerning the baby boomers and how their spending (or lack of) will effect the economy. Both Harry Dent and Peter Schiff were highly ridiculed for their perspective… and I feel after 20 years of investing… seeing what i’ve seen… they are more correct in their long term perspectives of anyones articles i’ve ever read.
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Alex,
I found Chris Martenson’s Crash Course to be pretty informative. I know that no one can predict exactly what things will look like, but there are some things that are almost sure to happen:
1. Population will grow
2. Resources (oil, minerals, etc.) will get harder and harder to obtain
We’ve lived through the easy to get resource period (that’s the last 20+ years). Now comes the harder part (the next 20 years). That’s all Martenson’s point is. He’s not predicting a specific DOW or S&P level. Just a lot of changes that don’t spell growth like we’ve seen in the past.
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Alex, Jim, above, expresses my feeling on markets and the world economy that we will all find ourselves facing, today and tomorrow. I looking for very slow growth, hyperinflation and an lower standard of living for most Americans
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Martenson is an IDIOT who has stolen the material of real experts like Mike Stathis, the only guy who predicted things to a tea.
Martenson has NO background in finance, economics or investments yet he charges money for his newsletter. He is just another profiteer out there who has fooled so many idiots. What a joke.
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