‘Could do better’ is a phrase that appeared more than occasionally in my school reports.
And it’s a phrase that has reared its ugly head once again as, in my final Money Morning of 2014, we mark my 2014 predictions.
What did I say would happen? And what actually happened?
Let’s take a look…
My score for 2014 – ‘could do better’
At the start of 2014 I made 12 predictions for the year ahead. You can read them in full here.
I was feeling pretty confident after I made them. I had got the future sorted. Silly me!
A reminder of the scoring system: two points for a hit, one point for a near miss, zero for a miss and minus one for what my son would call a ‘major fail’ – to cover the opportunity cost.
My most probable big picture scenario was that 2013’s 30% gains in the stock market would not be replicated, and that we would see a flatter year. “Stock markets up a few percent, maybe even down a tad” (OK-ish); ”with commodities starting to bottom out” (uh-uh); and bonds “down a little, or flat” (another uh-uh).
Here are the gory details.
Gold – I suggested that gold’s bear market would continue into 2014. “$1,050 is the low for the year; $1,425 the high”. The high for the year was actually $1,392 and the low (so far) $1,130. So, not great, but not bad either.
But I also said that “we finish the year higher than we started” and that 2014 would be the year the bear market ended. As it stands, $1,205 was the price at the opening bell of 2014. It’s $1,200 today. We don’t know what the year end price is yet, of course, but it’s certainly too early to tell whether that $1,130 last month was the end of the bear.
Tempting to try and negotiate a point – but on balance, item 1 on the agenda has to go down as a zero.
Oil – Well, I didn’t see the blood bath coming. I know of only one person that did. I suggested a low for the year of $87 a barrel, and a high of $115. The high was – and I’m talking West Texas Intermediate (WTI) here – $107 (not too far off) and the low $54 – so far. It has to go down as a major fail. Minus one.
By the way, we’re in the buy zone that I suggested in last week’s Money Morning, but the falls have been so hard and so fast, I’m not dipping my toe in just yet.
GBP/USD – Here’s what I said: “I suggest $1.70 or just above is the high for the year, $1.53 the low”. The high was $1.71 and the low $1.55. I’m giving myself a full two marks for that. I’m back in positive territory.
The FTSE 100 – Hmm. Zero points. I thought it would break to new highs above 7,000 – the high was 6,900 – and I suggested a low of 6,350, when it came in last month at 6,072. It was all going so well until oil fell off a cliff!
The S&P 500 – Here’s what I said: “It tests 2,000 and perhaps even breaks above. The 1,715 area marks the low for the year”. It did indeed test 2,000 and break above. The low was 1,737. Two points for that one.
Interest rates – A lot of people suggested that rates would rise in 2014. I said the Bank of England would leave them unchanged and, despite increasing pressure earlier in the year, that’s just what it did. An easy two points. We’re up to five points now.
A surprise wealth tax – This is when I started to make some more outlandish predictions in the name of entertainment. I said there would be some kind of wealth tax implemented somewhere in the EU ‘without warning in the name of equality’. Does George Osborne’s stamp duty count? Yes-ish. Hmmm. Maybe one point.
‘Japan finally gets the inflation it’s been wishing for’ – The yen has certainly lost purchasing power – 15% against the dollar – and from low to high, the Nikkei has risen by 30%. But we’re still not quite at my stated target of actual inflation, though I do still think we’re moving towards this ugly scenario. Zero points.
Eurozone panic – We moved into the realm of eurozone politics for this prediction. I said: “Anti-EU parties make huge gains in the May parliamentary elections, upsetting the relative calm in Europe of the last 12 months. We may even see one nation, most likely Italy, take steps to drop out – but I don’t think we’re quite there yet.”
We certainly got the May upset. And you could argue that Greece, in holding an election, is taking steps to drop out. We’ll settle for one point.
The US long bond (30-year Treasury) – The long bond began the year at 127 and rose steadily to a high of 149. I thought 136 would be the high and 117 the low. A fat zero. A hardier taskmaster would give himself a major fail.
UK property – “Prices get even more stupid in London and slightly stupid elsewhere” was my forecast, and that’s what’s happened – at least in the first half of the year. But that particular worm finally seems to be turning, as the recent Rightmove figures for London suggest. It may or may not be the start of something bigger, but London property prices are still ‘stupid’ – by my definition at least – so I’m giving myself two points.
England win the World Cup – That was a joke. “Brazil win the World Cup” was the prediction and I was still wrong. “Chelsea or Man City win the league” was the other. Yes – but I feel like a charlatan giving myself a point for that, so no points.
Nine points in total. The maximum is 24, and minus 12 is the minimum, so we’re somewhere in the middle.
The main takeaway from all this is that, whatever your market thesis, you must have a defined exit strategy in place should events not turn out as you expect (they rarely do, as the above proves). I’m forever saying it, but I’ll say it again: manage your risk.
If you do manage risk well, you can be right about the market less than 50% of the time and still make decent money. If you don’t, you can be right about the market even 70% of the time (a rare feat), but lose.
Remember: you can’t control what the market does. But you can control how you react to it. And, as any sports psychologist will tell you, you only need to concern yourself with what you can effect.
I’ll be back in 2015 with another set of forecasts. Until then, have a great Christmas and New Year.
- Bitcoin: the Future of Money? by Dominic Frisby is available directly from the publishers Unbound, from Amazon.co.uk. The audiobook is available here.
Category: Market updates