The investment world is about to experience a dramatic shift, and it will affect every strategy and money decision going forward. It will be silent and deadly to the uninformed, but virtually no one will pay attention to it.
And it’s all about history.
We quote the number of times just about anything has happened: crashes, run-ups, earnings misses, revenue beats… The list of historical indicators is endless.
But, by law, none of the above can be used to predict future results. (We’ve all seen the fine-print disclaimers that say “Past performance is no indication of future success.”) Still, every money manager, mutual fund manager or just about anyone in the business will tout their record as proof of their expertise and success.
If a mutual fund or ETF has a particularly good year, its marketing team will push you to its one-year return as a sales tool. However, that means nothing. And a good year is often the precursor to a really bad one.
For my money, the longer the data trail, the more confident I am. But that level of confidence may change dramatically in 2018.
This year is the 10th anniversary of the 2008 crash. That means the horrible numbers from the crash will fall out of 10-year averages. As the bad numbers fall off the 10-year radar, all averages will see a spike.
It’s simple math. Take out the horrendous losses of 2008 and those 10-year numbers have to bounce. In fact, with just a few minor blips along the way, the market and corporate numbers have moved virtually straight up since March 2009.
That is not a realistic picture of how markets or the economy move. Without the 2008 numbers, everything will look more positive than I am comfortable with.
Here’s why it matters to the gray-haired.
That dark chapter will have been erased from the record books. Every manager will be touting the new, higher returns and turning a blind eye to the past.
The higher returns everyone will post will not tell the whole story. And as this market rages on, it will be too easy to forget how bad it was. You can bet the Street’s marketing machine will be making the most of the new, higher averages.
As retired persons, we have no way – and too little time – to recover from another collapse. We can’t afford to forget or get caught up in the yahoo of new highs on the indexes.
Be a cynic and question every number! If you plan on making it to the end of this race with enough money to pay your bills, you better be damn cynical… starting with the new, glowing 10-year averages.
Don’t let the marketers paint too rosy of a picture.
Good investing,
Steve