Exactly Who are the Experts? And – Should you listen to them?

Last year proved to be especially rewarding for equity investors around the world, with returns of more than 25% in 41 out of 45 countries followed by by MSCI. Emerging markets did exceptionally well, with the total return for the MSCI Emerging Markets Index (expressed in US dollars) of more than 79%, the highest since the beginning of the index in 1988.

But for many investors it was a very challenging experience – and their ability to maintain consistent strategies was tested.

As Yogi Berra said, “It’s tough to make predictions, especially about the future.”

The following quotes from various “experts” over the past year demonstrate that as Yogi said, it is difficult to make predictions. Predicting future changes in various aspects of business is hard and predicting how other market participants will respond is even harder. Those investors who try to enhance their results by outguessing everyone else are often frustrated to discover that even an accurate economic forecast offers no assurance of achieving above-average investment results.

“Some optimistic experts are now saying that though this will be a turbulent year for global markets, the worst of the financial crisis is behind us. Would it were so. We believe that 2009 will be tougher than many anticipate….The world’s first global recession is just getting started.” Ian Bremmer and Nouriel Roubini, “Expect the World’s Economy to Suffer Through 2009,” Wall Street Journal, January 23, 2009.

“Don’t be fooled by bear market rallies. It’s way too early to get back into U.S. stocks…Expect meltdowns in securities backed by credit card debt, home equity, student and auto loans as well as commercial real estate…. Avoid emerging markets, especially China. China’s fiscal bailout contains lots of smoke and mirrors, and social unrest is mounting.” Gary A. Shilling, “Field Day for Short-Sellers,” Forbes, February 16, 2009.

“Equity bulls can argue that each fresh low brings the market closer to a bottom, but this has been a constant and increasingly hollow refrain for more than a year. Moreover, attractive valuations, reflected in low price earnings ratios and dividend yields comfortably above 10-year government debt yields, are increasingly believed to represent ‘value traps’ for investors—in other words, they are cheap for good reason.” Michael Mackenzie and David Oakley, “No End in Sight for Equities’ Bear Hug,” Financial Times, February 25, 2009.

“We’re not out of the woods by any stretch of the imagination. One has only to look at the pace of rising unemployment and what that entails for corporate profits in 2010 to remain cautious about the equity market.” Quotation attributed to Andrew Milligan, head of global strategy, Standard Life Investments. Michael Mackenzie, “Beware the Bear Market Bounce,” Financial Times, April 4, 2009. “When searching for a floor, the risk is that the roof caves in on top of you. The current broad market rally has spawned renewed talk of inflections, turns, and bottoms…Upbeat comments on profitability from the likes of Citigroup Inc. kicked things off. Speculation that mark-to-market accounting might be suspended also helped. Neither is convincing….Even if investors think it can’t get any worse, the underpinnings of a sustained, healthy rally aren’t in place yet.” Liam Denning, “Rally Driver Wanted for Stocks,” Wall Street Journal, March 17, 2009.