The Myth of Predicting Investment Behavior

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The Myth of Predicting Investment Behavior

Have you ever been to a fortune teller?

Or been tempted by the promise of answers to your future?

It is a common desire, to want to be sure that your future is the best it can be. The same even applies to investing. Many times, movements in the market can cause the same desires to surface. Investors are tempted to switch asset classes based on perceived predictions of future performance.

But just like the fortune teller at the fair, there is little that can truly be accurately predicted about investment behavior, especially when it comes to asset class performance from one year to the next.

The image below shows annual ranked performance of major asset classes in the US and International Markets from 2000-2014. The asset classes are then represented by corresponding market indices.

Do you see a pattern in the data? You can focus really hard but you won’t find one. The data shows no obvious patterns of performance across asset classes.

This suggests that predicting the future performance of investments is pretty near impossible, just like predicting your own future.

The charts do show additional evidence of market efficiency, therefore making a strong case that investors should rely on the structure of their portfolios rather than market timing. Pursue returns by trusting in the structure of what has been built, instead of the hard-to-keep promises of bigger better things in the future.

Predicting Investments

What are your tips for staying away from the temptation of “predicting” the future?

Samuel J. Sweitzer
Samuel J. Sweitzer
Founder and President of Anson Analytics, Inc. - an RIA firm specializing in Research Based Investment Management for Corporate Retirement Plans and Private Investors. Sam is a Chartered Financial Analyst (CFA) and currently serves as Anson's Chief Investment Officer. Sam resides in South Metro Atlanta with his wife and two daughters.

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