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Is there any point in making investment predictions?

Nathan Lear
Partner/Private Client Adviser
19 Sep 2017

An article last week caught my eye. William White, a prominent economist and central banker has recently made a call that financial markets look similar to how they looked in 2008 prior to the Global Financial Crisis (GFC).

White, who is highly regarded, is reported to have predicted the GFC that occurred around ten years ago.

Sensationalist journalism seems to be a dime a dozen at the moment. Of course, in my role as a financial advisor, I need to be abreast of financial news but I keep seeing the same rhetoric over and over again. And I’m getting sick of reading this stuff!

Here is a little sample of some recent views, where so called financial experts have got it wrong:

Property – Australians love their property. And we also love putting in our two cents when it comes to the housing market and its outlook. There have been many reports in recent times regarding the state of Australia’s property market. On 21 August this year, Four Corners aired a program that painted a very glum outlook for the Australian property market. Many people have been calling the end of the property boom for many years now. If you are interested in the Four Corners report, click here

Equities – Royal Bank of Scotland (RBS) economists made a call in January 2016 that investors would face a “cataclysmic year” and in a note to clients said investors should “Sell everything except high quality bonds.” Equities went on to have a very strong year, despite fears concerning the Trump Administration and Brexit.   

Bonds – In February 2011, Bill Gross was at the time in charge of the biggest bond fund in the world – at Pimco. Gross made the call to completely sell out of US Treasuries, predicting yields would begin to sharply rise and in turn erode bond holder’s capital. Gross was completely wrong with bond yields tightening further, which resulted in rising bond prices. 

Australian Dollar – The Australian Dollar currently sits stubbornly high at around 80 cents to the US Dollar. At the start of this year it was just above 70 cents and the consensus was it would fall closer to 60 cents. Now some of the rhetoric is that 90 cents is possible. Who do we believe?

Amazon – I feel like this one has been done to death in recent times. No doubt Amazon is a great business model but for the last 15 years everyone seems to have the view that Amazon is going to take over the world.  I’m still waiting.

Bitcoin – A lot of people are coming out with predictions on Bitcoin and other crypto currencies. If you plan to use Bitcoin or any other as a means of a crypto currency then great, but suddenly everyone seems to want to pore their money into Bitcoin and other crypto currencies as an investment. To understand the allure, have a look at the graph below that highlights its steep rise in value over the last few years. I wont lie, when I see a sharp increase like that I do think bubble. But… just so I don’t contradict myself, as per the premise of this article… what would I know?  

*source www.xe.com


So should we be fearful of White’s financial market observations?

As for William White’s call on the state of markets and their similarity to 2008. Is he right? To be frank, I have absolutely no idea. You could put ten experts in a room and ask them this question and you would probably get ten different predictions. Perhaps more!

What is the solution you ask? Portfolio diversification! A well designed diversified portfolio that is designed specifically for you as an individual, with the end goal of achieving your financial goals and objectives.

Diversification works on the premise that you spread your wealth across investment types to reduce the level of risk and protect yourself in the event of a downturn. This works because markets aren’t perfectly correlated and rarely move in the same direction. For example, during the GFC, equities fell off a cliff but bonds (fixed interest) were a stellar performer.

It may sound like we harp on about diversification in your investments and the rebalancing of portfolios but we do so because it works. Hewison Private Wealth has been managing client investment portfolios for over 30 years. We’ve been through countless market cycles and endless market predictions.


What have we learnt about managing investments in 30 plus years?

  • Understand your goals and objectives – this way a portfolio can be constructed with clear purpose
  • Diversification – helps to reduce risk as markets are not perfectly correlated
  • Regularly rebalance – takes emotion out and helps to buy low and sell high
  • Think long term – markets can be very irrational in the short term but the long term trend is typically upwards
  • Turn off the noise – don’t listen to all you read/hear
  • Don’t follow the heard – this can be dangerous and lead to bubbles in asset prices
  • Invest Now – Don’t try and time markets, it never works

Hewison Private Wealth is a Melbourne based independent financial planning firm. Our financial advisers are highly qualified wealth managers and specialise in self managed super funds (SMSF), financial planning, retirement planning advice and investment portfolio management. If you would like to speak to a financial adviser on how you can secure your financial future please contact us 03 8548 4800, email info@hewison.com.au or visit www.hewison.com.auPlease note: The advice provided above is general information only and individuals should seek specialised advice from a qualified financial advisor. The views in this blog are those of the individual and may not represent the general opinion of the firm. Please contact Hewison Private Wealth for more information.