Because those of us who write a lot of stuff are inevitably lazy, you’re likely seeing a lot of 2015 predictions come forth.
“Why X stock will be ZOMG in 2015!”
“Why oil will continue to be weak in 2015!”
“Why Y stock will continue to suck in 2015!”
Let me tell you guys a secret. In today’s world of click-baity headlines and short attention spans, most people can’t even be bothered to read an entire 600 word article. The internet is full of so much stuff that we can’t even pay attention for a solid minute to get the gist of something. Hell, most of you just skimmed this paragraph.
So the people who write this stuff pull a bit of a fast one. They know what works, so they come up with a 2015 “prediction” headline, while basically regurgitating the same stuff they talked about for the last six months. If they predicted something in July, 2014, then it’s bound to come true sometime in 2015. If you keep making the same prediction, chances are you’ll end up being right eventually. It’s the “broken clock” financial prediction system.
The comparison to oil
Because I follow these things now, I have a pretty good memory of the most recent collapse of the price of oil. Unsurprisingly, most people didn’t see it coming.
Now that oil has fallen nearly 50% from its peak about six months ago, analysts everywhere are calling on the price of crude to stay low throughout 2015, even through 2017 or 2018. These folks look at the future prices for these years and don’t see any premium compared to where crude trades today, and declare it a weak commodity.
Everyone seems to agree with these analysts, so they have numbers on their side. Even a lot of the investors I know who are buying oil stocks right now think the price of crude could stay low for a while. They just don’t want to miss out on the subsequent rally, so they’re placing their bets now.
Every time I read a piece bearish on energy from someone who didn’t call it on the way down. I take it with a massive grain of salt, and you should too. Nobody knows where the price of oil is going to go. It’s one of those commodities that is manipulated by hedge funds and other traders. It becomes more than just a supply and demand equation, which makes it incredibly difficult to predict. Predicting market sentiment is hard. Stock markets will regularly go up and down for no apparent reason.
I’m not even sure we can count on oil traders or oil company execs to accurately predict the price of crude. Oil executives are perma-bulls, always choosing to look at the commodity from a glass half full perspective. Typically, you don’t get into the oil business unless you’re a believer in oil and its economic benefits. Of course oil guys are going to be bullish.
Commodity traders are kind of the opposite. They don’t really care whether they’re long or short, as long as there’s momentum in one direction. Thus, if the price is going down, they think it’ll continue to do so.
Why your opinion matters
One thing I learned after writing approximately 600 articles about stocks and investments in 2014 is how every stock has good things and bad things going for it. I could pick any stock and write both a positive and negative piece about it. For example:
Canada’s banks are among the best ran banks in the world. Each has a track record of increasing earnings and raising dividends since the years started with 18. They also trade at pretty reasonable P/E ratios and look to have pretty conservative balance sheets, at least for banks. You should buy them.
Canada’s banks are a ticking time bomb waiting to go KABLAMMO. Our housing market is massively overvalued, and the average consumer’s debt level looks worse than Nelson without a shirt on. Once the effects of oil’s decline really start to hit the bottom line, these financials are going to be screwed. Sell now, while you still can!
See how easy that was?
Most folks don’t seek out negative articles when they’re researching a stock. Some do, but just so they can say mean things about the person who has the opinion. Humans tend to make a decision pretty quickly, and then spend the time validating it.
I find the more time I dedicate to investing, the easier it gets. I used to pour over financial statements for hours, running all sorts of ratios. Now I can figure out whether a stock looks attractive without going to that much work, especially the smaller ones. Like Charlie Munger once said, “you don’t need to know a man’s exact weight to know he’s fat.”
As long as an investor is reasonably informed enough to know why they’re investing in what they are, I say go ahead and buy whatever you want. Sure, it’s important that at least some other investors are on your side, but ultimately you’re the only one who’s putting out the cash. As long as you can justify it to yourself, then screw everybody else.
And then if oil (or whatever) goes down, then you have nobody to blame but yourself.
In the defense of bloggers who will actually put out 2015 predictions, they’re mostly doing it for chuckles and kicks and are pretty clear in pointing that out. There’s nothing wrong with making predictions or following along as others make them, as long as you realize that they’re just some guy pulling stuff out of his ass. Smart people get predictions wrong all the time, and dumb ones will stumble upon something every now and again.
In a world where everyone is making predictions, they’re not worth much. Feel free to be entertained by them, but don’t take the word of pundits as the gospel. They all really don’t know a whole lot.