2011 Winners Can Make You a 2012 Loser

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No one can predict the future. Yet the financial institutions has convinced the public that they can beat the market. The best solution for investors is to own equities, globally diversify and rebalance. Any other strategy makes more money for Wall Street and less for Main Street.

Arends looked at the “most hated” stockswith the most analyst “sell” recommendations. The top 10 of these stocks underperformed the most “loved” stocks by less than 1%.The overwhelming evidence that no one can predict which asset classes (much less which stocks or mutual funds) will perform well in the future has not deterred the same “experts” from making predictions for 2012. I want to get in on the action so here are my predictions:

1. A majority of investors will continue to believe brokers have the ability to pick outperforming stocks and actively managed mutual funds and to provide guidance on “what is happening” in the market;

2. A minority of investors will cancel their retail brokerage accounts and invest in a globally diversified portfolio of low management fee index funds in an asset allocation appropriate for them.

3. Over time, the returns of the minority of investors described in #2 are likely to outperform those of the majority of investors described in #1.

4. The primary beneficiary of perpetuating the myth that retail brokers and financial pundits can predict the future will be those dispensing this advice. The victims will be those relying on it

Process beats predictions over time. No one can consistently predict the future.

Please comment or call to discuss.

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