Dan Solin's three stock market predictions for 2010
My first prediction is there will be no end of "financial experts" who will shamelessly set forth their views on what will happen to the stock markets in 2010. Let's take a look at some of their past predictions:
• Jeremy Siegel, the Russell E. Palmer Professor of Finance at the Wharton School of the University of Pennsylvania and the author of Stocks for the Long Run, predicted we would avoid a recession in 2008 and financial stocks would outperform the S&P 500.
Sorry, professor. The recession clobbered investors and financial stocks underperformed all market sectors.
• "Dr. Doom," professor Nouriel Roubini, accurately predicted the mortgage-related crash of 2008. Flush with victory, he told investors to avoid the stock markets in 2009. He was concerned about a further loss of "50% of your wealth."
If you followed this advice, you missed out on a rapid market recovery that saw the S&P 500 stock index surge 24% and the Nasdaq rise by 37%.
• Jim Cramer -- not one to lack in confidence or flair -- opined that Goldman Sachs (GS) would finish 2008 at $300 a share. Cramer didn't consider this a mere prediction. It was "an inevitability."
Goldman Sachs finished 2008 at $84. Its current price is $167.
Cramer also predicted Google (GOOG) would reach $1,000.
It finished 2008 at $307. Its current price is $585.
• Elaine Garzarelli, president of Garzarelli Capital, advised investors to buy Lehman Brothers, Bear Stearns and Merrill Lynch because these stocks were "the most beaten down." They're more than beaten down now, as everyone knows.
I could go on, but you get the drift. Sometimes the experts are right, and sometimes they're wrong.
Two More Predictions and One Holiday Wish
My second prediction is that most investors will continue to rely on the discredited pseudoscience of stock market predictions. Their brokers and advisors will tell them they can "beat the markets," time the markets, pick stock winners and pick superior fund managers. Even though no data indicates anyone has these skills, it won't deter these "financial pros" from pitching them to trusting and gullible investors.
My third prediction is that a growing number of investors will fundamentally change the way they invest. They'll close their retail brokerage accounts. They'll understand that they can control only a few things: They can keep their fees low by choosing the right funds; they can focus on their asset allocation; and they can use low-cost index funds to put together a globally diversified portfolio of stocks and bonds. These investors are likely to achieve superior returns over the long term.
My holiday wish for all of you is that you become members of the group that validates my third prediction.
Dan Solin is the author of The Smartest Retirement Book You'll Ever Read (Perigee Books 2009). His prior books include theNew York Times bestsellers The Smartest Investment Book You'll Ever ReadandThe Smartest 401(k) Book You'll Ever Read. See SmartestInvestmentBook.com.