Jan Voss is an asset manager at Cape May Wealth. Jan Voss / Getty Images / Holger Leue, Igor Kutyaev / Collage: Dominik Schmitt
Asset manager Jan Voss says the annual financial market outlook is pointless.
The former Goldman Sachs banker explains that he no longer reads these reports because short-term forecasts are often inaccurate and long-term strategies are more important.
Like every year, December and January are the reporting season for financial market players. Banks, asset managers and asset managers publish detailed reports in which they set out their expectations for the new year – and often the associated investment ideas for the new year.
Over the past few years I’ve intended to read one or two reports, but I’ve never managed to do so. This year I even decided not to even try. Why? I would like to explain this to you – and show you how you can better invest the time you have gained in your financial planning.
Uncertain forecasts, inaccurate recommendations for action
Even if many players try, it is difficult or impossible to create accurate forecasts for the capital market, especially in the short to medium term. While some investments have remained close to their long-term returns over long-term periods, short-term assumptions are more like reading coffee grounds. No financial market player that I know of had predicted the magnitude of bond market losses in 2022, nor had anyone expected 2023 to be such a good year for stock markets given inflation and wars.
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But even in the rare case of an accurate forecast, the value of a one-year outlook is doubtful. Either these are short-term, “tactical” action forecasts that can only be implemented for a small part of the portfolio. Or, they are long-term forecasts for entire asset classes such as US stocks or European government bonds – which can be valuable, but are ultimately only secondary to a core aspect of long-term investing: strategic asset allocation. This specifies which asset classes, regions and currencies an investor invests in in order to achieve the chosen goals – and it is so long-term (10, 20, or even 50 years) that even a precise long-term forecast of five to ten years is of secondary importance becomes.
I have to take a stand for the creators of the annual outlook: they encourage investors to make “tactical” bets only in small parts of their assets and promote long-term “stay invested”. They do not recommend short-term, radical speculation and therefore do not cause any “harm” to their readership. The main negative effect (besides potentially wasted time reading the reports) occurs when the creators sell products that are particularly suitable for short-term expectations: they often only promote topics and products once they have reached the mainstream and then only offer little potential for increased value. Additionally, they often come in product forms that are less than ideal, such as actively managed funds or expensive structured products.