Fisher Investments Editorial Staff

Predictably Unpredictable

By, 12/31/2009

Story Highlights:

  • Economic and stock market predictions for the next decade abound—both optimistic and pessimistic.
  • But long-term predictions are never entirely accurate; there are too many fluctuating variables.
  • Innovation is a big factor in the economy and investing—and there's no telling what advancements will be made in the next decade.
  • Investors should base tactical portfolio decisions on the outlook for the next year or two, not the next decade or two.


As the New Year and new decade approach, predictions from analysts, economists, and every other -ists out there are making headlines. Some are optimistic; others pessimistic. What do they mean for investors? Not much, really. Long-term economic and stock market predictions are never entirely accurate and often miss the mark by a wide margin—there are simply too many fluctuating variables to accurately predict what the next 10, 20, or 30 years hold.

Very long-term stock market forecasts are particularly futile. Remember, stock prices are determined by supply and demand. Demand drives stocks in the short term, but supply is ultimately more important long term—and since no one knows what stock supply will be years from now, no can possibly predict what stocks will do more than a year or two out. Will a deluge of IPOs flood the market like in 2000? Or will share repurchases and cash-based acquisitions shrink equity supply? It's impossible to tell.

Innovation also plays a huge role in the economy and the way we invest—just look at some of the big changes over the last 10 years.

Today's Financials sector is much different from just two years ago—decades-old institutions no longer exist or have been swallowed by other firms. Governments have more influence over compensation and control over companies. Derivatives, ETFs, structured investment products, etc., have evolved and grown tremendously over the last decade. Who knows what the next decade will hold in terms of financial innovation?

In Energy, advancements in exploration and production have enabled firms to find massive new pockets of oil and gas. For example, the Tupi field in Brazil was discovered below thousands of feet of water, rock, and salt. Ten years ago, finding oil there, let alone extracting it, would've been nearly impossible. But with today's technology and new drilling methods, previously inaccessible oil and gas are now recoverable. Similarly, energy firms can now tap huge quantities of natural gas trapped in shale formations thanks to recently developed fracturing techniques.

Technology is another sector that saw huge innovations in the past decade. Just five years ago, the iPhone, Palm Pre, and Droid didn't exist. BlackBerries were awkward business devices with only a fraction of their current functionality. Now, smartphones are used for e-mailing, gaming, texting, even monitoring blood sugar, and are the fastest growing area for most mobile telecommunications firms.  Computers also benefited from technological innovations, getting smaller, more portable, and much, much cheaper over the last 10 years.

Fact is, every period is in some ways unique and in some ways the same. People, capital markets, and the basic principles of economics haven't (and won't) fundamentally change. People today invest for the same reasons they always have. And basic features of stocks mean they should continue to be the best option for most long-term investors. (Of course, investing time horizon will always be an essential determinant of investors' long-term asset allocation.) But the uniqueness of each period means it's anyone's guess where exactly stocks will be in 10 years—all we can say for sure about the decades ahead is things won't be stagnant. We'll assuredly see both bull and bear markets in the years ahead. Remember, even Japan's "lost decade" in stocks included many ups and downs—a lot of volatility, not stagnancy.

So while it's good to keep an eye on what people expect for the future, the only thing really predictable about stocks and the economy over the long term is that they're unpredictable—there are simply too many unknowables that far out. Tactical portfolio decisions—like which countries or sectors to invest in or whether stocks are set to rise or fall—should hinge on expectations for the next year or two, not the next decade or two.

*The content contained in this article represents only the opinions and viewpoints of the Fisher Investments editorial staff.

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*The content contained in this article represents only the opinions and viewpoints of the Fisher Investments editorial staff.


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