J K Galbraith was a Canadian/American diplomat and economist and he is responsible for one of the greatest truisms in investing.
The financial press is awash with people who feel it’s their calling to predict the future. They want to predict the level of the stock market in 12 months’ time, which economies will race ahead and which will struggle, when and by how much interest rates will change or which individual companies will outperform the broader stock market (to name but a few).
The implication is that being able to forecast in this way can help us be more successful investors.
Taking the calendar year as an example, the S&P 500 (a broad measure of the US stock market) rose by 16.4%, with the index going from 5881 to 6845.
The major US banks all made predictions (as they do every year). Goldman Sachs and Morgan Stanley were the most optimistic but they were 5% below the actual number. JP Morgan and Bank of America were very pessimistic at the start of 2025 and missed the actual number by 24% and 18% respectively!!!
It’s just random and utterly pointless. There will be investors out there that made decisions on the back of these predictions.
There is no need to resort to forecasting in order to have a successful experience as an investor. You can simply buy very broadly diversified stock market investments and stick with them. Even that’s not as easy as it sounds as there is so much choice out there. An adviser can really help with this.
Going back to J K Galbraith, it doesn’t matter what kind of forecast you are; one who doesn’t know or one who doesn’t know they don’t know. Either way it’s just a really bad idea.
