As we approach the end of 2020, pundits are providing their forecasts for 2021. This annual exercise holds important information for the next year. It’s information no investor can afford to ignore.
The secret to investing in 2021 is something investors already know: Adapt to the market in real time rather than trying to impose your wishes on the market action.
You already understand that no one knows what will happen over the next 12 or 13 months. Those writing these forecasts must know that. This means their forecasts are either for entertainment purposes or they take themselves too seriously.
What could happen in 2021? Anything.
Investors Must Adapt in 2021
Because anything can happen at any time, you should have an exit strategy before you buy any investment. If the market moves against you, then you should follow your plan. The same is true if the market moves in your direction.
Good investors know that the facts will change over time, and as facts change, they must adapt.
Forecasts prevent adapting.
For example, let’s say I tell you that stock ABC will be the best performer of 2021. If the company misses earnings estimates in the first quarter, I might say that’s OK since there are still three more quarters to go. That’s not based on the earnings miss. That’s based on my ego, because I said this was the absolute best stock to own in 2021.
In a case like that, I’m trying to be right instead of staying focused on making money. And for investors, the goal should be making money instead of being right.
That’s why it’s best to avoid forecasts.
End-of-Year Forecasts Are a Silly Tradition
To be honest, most parents wouldn’t try to forecast their child’s grades in school. That’s because they know there are too many variables to do so.
If we accept limitations in forecasting everyday life, we should do the same in the stock market.
End-of-year forecasts are a tradition. But it’s a silly tradition. I won’t read any because I realize there is no basis for making forecasts like this. I urge you to do the same.
Editor, One Trade