Saturday, June 30, 2012
July 2012 Stock Market Predictions
My market prediction project received a much needed dose of reality with June Stock Market Predictions as I got all four of my predictions wrong. I am now 9-for-16 on the year with my predictions, clearly in random chance territory. Even not counting dividends all four of the funds I track have posted gains in June. To recap:
Vanguard 500 Index Fund Investor Shares (VFINX). June 2012 Starting Price: $121.19. Prediction: Lower. June 2012 Ending / July 2012 Starting Price: $125.55 with $0.607/share dividend. Result: WRONG.
Vanguard Small-Cap Index Fund Investor Shares (NAESX). June 2012 Starting Price: $34.80. Prediction: Lower. June 2012 Ending / July 2012 Starting Price: $36.37 with no dividend. Result: WRONG.
Vanguard Developed Markets Index Fund Investor Shares (VDMIX). June 2012 Starting Price: $ 8.22. Prediction: Lower. June 2012 Ending/ July 2012 Starting Price: $8.82 with no dividend. Result: WRONG.
Vanguard Emerging Markets Stock Index Fund Investor Shares (VEIEX). June 2012 Starting Price $24.00. Prediction: Lower. June 2012 Ending / July 2012 Starting Price: $25.16 with no dividend. Result: WRONG.
For my July 2012 predictions I will go with a sophisticated valuations-based methodology (i.e. meant to make my potential clients think that I know what I'm doing -- an incredibly common and successful money-sucking technique employed by vast majority of fund managers and financial advisers). I predict an up month for VFINX and VDMIX and a down month for NAESX and VEIEX.
A heads-up to irregular readers of this blog who might come across this page... What I am conducting here is a (barely) scientific tally meant to divine whether or not I have any magical market prediction powers. I'm actually quite sure that I don't, but it doesn't hurt to double-check. Something like this, fully verifiable and with at least 100 data points (e.g. monthly predictions for 1 market index over a period of 100 months or annual predictions for 10 market indices over 10 years) and 80% success rate should be the barest of the bare requirements for handing your money over to somebody who claims to know how to beat the market.
And note that 80% accurate prediction is NOT AT ALL the same as 80% successful backtested strategy. Any mathematically literate person with a computer can come up with a backtested "strategy" that beat the market 80% of the time in the past. Such "strategies" are worth exactly nothing because they are developed with the benefit of hindsight. They are the equivalent of discovering last week's winning lotto numbers. What you need to be looking for is a verifiable record of forward-looking predictions. For example, http://www.cxoadvisory.com/gurus/ keeps just such a record for a number of self-proclaimed market gurus -- observe how none of them even approach 80% accuracy and how their average accuracy is right around the worthless 50%, i.e. random coin flip.
Yet, approximately zero active investors have investing requirements that stringent. Instead they tend to listen to the biggest loudmouth on the floor/block/TV/internet, which results in their badly lagging the market over their investing lifetimes. A common "strategy" that I've noticed in the past few years is listening to a coworker who claims to have sold right before the 2008 plunge and has been day-trading ever since with unknown and certainly un-benchmarked results. It's mind-blowing that anyone with a brain would take this approach seriously. Yet millions do and bet their hard-earned savings on it. Sad. You should aspire to do better.