February 17, 2017

Stern's humble yet expert forecast for 2017

At this time of the year, forecasts for 2017 can be seen and read everywhere. What is astonishing to see is how little the experts were able to correctly predict last year. Nevertheless, forecasts remain popular, especially among investors.

I hardly pay attention to these predictions, especially after reading Peter Lynch's book "Beating the Street". Lynch explains how he annually met the 30 largest investors in New York at the invitation of the renowned publishing house Barron and made forecasts for the coming year.

Not one of the experts' forecasts even came close to being accurate. This is Peter Lynch's statement in his book, not mine!

To further the point, in 1987 (before a very big market crash), the forecasts from the Wall Street luminaries couldn’t have been more optimistic and predicted the best year of the decade. I remember well my father's long-time investment advisor telling us in June 2009 that you will never make any money investing in stocks again. In reality, June 2009 was clearly the best entry point for stock investing in decades.

Philip Tetlock, a professor at the University of California Los Angeles (UCLA), investigated the matter scientifically and analyzed 80,000 expert forecasts. His conclusion: a roll of the dice is a better predictor of the future. Ironically, the more famous the "expert", the worse their predictions have been. On the other hand, those who were less renowned have had better results with their predictions.

The reason? Society and economy are simply too complex to make accurate predictions. This is the illuminating opinion of Nobel laureate Daniel Kahneman.

So, why would I dare to make my own prediction? First, because everyone has to think about their priorities, and second, because you, as a reader, are in a better position to evaluate me. So, what is my strategy in 2017?

First of all, I don’t have a lot of trust in today's investment possibilities and will only make necessary investments in new assets. This is also why I have paid off a large part of my mortgages. In addition, I am planning to invest in equities again in 2017, because it is important to do this consistently every year. Because of the payments for my mortgages, I will have less money available to invest in the stock market than before.

I will not enter the US market in 2017, because I think the North American markets are still too expensive and the prospects for the US economy have deteriorated with the election of Trump. This is my personal opinion, not a prognosis. And I will stay true to my opinion, even though I am probably wrong.

I continue to believe more in Europe than in other regions, because I have more confidence in free, social market economies than in authoritarian societies, no matter how cool their bosses are. Europe is still the gold standard for me, even though I wish it could be even better.

For the pure pleasure in its technology, I have bought Bitcoin over the last fifteen months, in a position that represents about 2% of my assets. I don’t care if the money disappears, but the hope and prospects bring me a lot of joy. I personally believe in Bitcoin, but my opinion is in the minority.

For the first time in my life, I created a small gold reserve out of small gold bear relics I keep in my safe, which only represent 1% of my assets. I do not expect any return, because, by definition, gold does not yield a return. Gold is only an emergency solution in case of natural disasters and I use this primarily for the protection of my family.

In summary, this is what 2017 means for me: lower leverage (fewer debts) and fewer new investments and a little bit of speculation on Bitcoin, a personal passion.

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