Every year around this time we start seeing Wall Street strategists' predictions for the year ahead. It is easy to understand why the business media cover this, but the practice can be dangerous.
All you really need to know is that no one, and I mean not a single person in history, has ever accurately predicted market action with great consistency. Some will get lucky and make a good prediction now and then, but it is luck and not skill. There isn't one who calls the twists and turns year after year.
The danger of this game is two-fold. Firstly, the fact that so many big-time strategists engage in this exercise makes people think there actually is some way to make these predictions. It also makes some people think that since they aren't able to do it then they won't be very good investors. That is just plain wrong. Good trading and investing has very little to do with long-term prediction.
The second issue is that once you start to take this sort of prediction seriously you have a vested interest in being right. If you predict that the market will be down for the year then you will always be looking for things to verify your bias. This is called confirmation bias and it can play havoc with your trading once it takes hold. You will focus on finding the negative spin and will constantly fight positive action.
I do think it is helpful to identify individual stocks that may do well in the year ahead. It makes for a nice watch list that you can review as conditions change and doesn't carry the same baggage as making major market calls.
The big market calls generate a lot of attention, which is why the strategists make them. But we'd be better off if we focused on being flexible rather than psychic. There is very little, if any correlation, between returns and predicting where the market will be a year from now.
Speaking of predictions, I am working on a list of some small-cap names to watch in 2017. One name on the list is Northern Dynasty Minerals (NAK) , which isn't waiting for me to finish my article. I mentioned it on Friday and it is busting out today. As I write it is up nearly 25%. I'm looking for it to stay active the rest of the week.
