Regular visitors to The Value Perspective will be well aware of our view the future is uncertain and therefore hard to predict. It is why we do not factor any macroeconomic forecasts into our investment decisions. That said, in the aftermath of last week’s US presidential election, regular visitors to The Value Perspective could have been forgiven for predicting another article on the folly of forecasting was on its way – and here it is.
Over the years we have been nothing if not even-handed when it comes to our opinion of forecasters – taking pops at practitioners within the fields of economics, sport, meteorology and of course politics. In the last 18 months, pollsters, pundits and, in many cases, even the traditionally more hard-nosed bookmaking fraternity have been confounded by an extraordinary series of unexpected political outcomes.
In fact let’s turn to the bookmakers to make our point this time. You could have found odds of 7 to 1 against the Conservatives gaining an outright majority in the May 2015 General Election just days before it became a reality and odds of 100 to 1 against Jeremy Corbyn winning a four-horse race to become Labour leader a matter of months before that fact also entered the history books in September of last year.
The day before the UK’s vote on European Union membership, meanwhile, you could have found odds of 6 to 1 against ‘Leave’ coming out on top. And the US presidential election? Well, one high-street bookie was so confident Hillary Clinton would end up victorious, it paid out £800,000 in ‘winning’ bets last month. Last year, of course, you could have got Corbyn-like odds against Donald Trump moving into the White House.
As we wrote in Poll fault after last year’s general election, the future is unknowable – and yet the market can and does work itself into a state about hopes and fears that turn out to be wholly illusory. What is more, as we pointed out in Brexit’s double illustration last month, the perils of forecasting the future mean market consensus can often be caught out not once but twice.
So consensus failed to call correctly either the result of the EU referendum or that markets would actually move upwards over the following days. And exactly the same thing happened with the US election and its aftermath. As we wrote last month: “And maybe, over the coming weeks and months, those [consensus market] views will still be proved broadly correct – who knows? Which of course is completely our point.”
Here on The Value Perspective, however, we are well aware that, just as we did not know how the US election would turn out last Tuesday, we cannot know what will happen next week. Instead, by focusing on the long term, we avoid buying into any prevailing opinions or other ‘noise’ that could influence portfolio decisions.
We are mindful of their possible impact but can point to more than 100 years of history that shows an unemotional, valuation-based approach to investing should deliver over the long run – regardless of anything the political, economic or any other type of forecasters might have to say.