“Neglect the forecasts” said Jigneshbhai when Swami asked him how his investments will do this year.
The start of the year is filled with predictions for Sensex and Nifty levels. Will the Sensex hit 45000 in 12 months? What is the list of top 10 stocks for the next year?
The next levels of forecasts are about sectors. Which sectors will do better than others? Will automobile recover, will consumption grow, will exports get back on track?
Then there are the macro level forecasts on top trends for the next year, whether the economy and GDP growth will recover, what will happen to interest rates, inflation?
Like all forecasts some of them will be right, most of them will be wrong.
The problem is we don’t know now which is which. So we can’t put them to any fruitful use.
So what type of forecasts are useful to an ordinary investor?
Forecasts may tell you a great deal about the forecaster; they tell you nothing about the future, said Buffett.
So it is better as an ordinary investor to stick to forecasts about yourself to whatever extent possible.
What do you think are the chances that you will stay invested for next 10-20 years?
How will you feel about being 60% invested in stocks 10 years from now?
What is the probability that you can save 30% of your earnings and put them into your investments for the next 10 years?
How will you react when markets fall by 30% sometime in the next couple of decades?
If you can forecast these with reasonable confidence, then I can forecast with reasonable confidence that you will meet your goals 10 or 20 years from now, irrespective of what the markets, economy, interest rates, GDP, sectors or stocks do in 2020.