Motley Fool: fearless investing predictions for 2016

Motley Fool: fearless investing predictions for 2016

How to prepare for the new year when it comes to your investments.

The economist John Kenneth Galbraith famously said: "Pundits forecast not because they know, but because they are asked." Which is exactly the position I find myself in.

Caitlin Fitzsimmons, editor of Money, asked me about my expectations of investment trends for 2016. I will resist the urge to forecast, because Galbraith has deftly removed that very fig leaf already. And, I have to say, that's no bad thing. Once you can admit – to yourself and others – that you can't accurately forecast the future, it frees you up to be more honest. Instead, as many others have already opined, it is best to "prepare, don't predict".

Sit down, buckle up and hang on.

Sit down, buckle up and hang on.

Photo: Supplied

So with that in mind, here's how to prepare for the new year when it comes to your investments:

Investing will be hard

Maybe that statement qualifies me to win the "Captain Obvious" award – except many investors didn't realise it was obvious at all during 2015. We live with uncertainty. The prospect of a China bust continues to hang over our heads, commodities seem to be in free fall, and the same can be said of mining company shares. Ditto bank shares, whose investors aren't used to seeing their portfolios suffer.


Watch out for: The fundamental supply and demand imbalance for oil and iron (in particular) shows no sign of recovery. Don't buy just because they "must" go back up.

Gravity is real

It's tempting to try to find the company that will confound expectations – or even gravity itself. Dick Smith was supposed to have somehow revolutionised electronics retailing, despite the continued presence – and growth – of JB Hi-Fi​ and Harvey Norman. If you find yourself – like Wile E. Coyote – in midair but still running – it's probably not going to end well.

Watch out for: There are some ASX companies that'll end up justifying lofty valuations. The rest will make you poorer. Hope is cheap – unless you're buying it on the ASX.

Know you'll be wrong

If there's one thing I was reminded of in 2015, it was investors' ability to take successful stocks for granted, but to obsess to the point of paralysis over the losers. As Motley Fool co-founder David Gardner says, you should try to learn from your winners, not your losers. Being wrong from time to time is part of the game. You don't see a golfer giving up because she hits a bad shot – or even has a bad round.

Watch out for: You'll likely have at least one company that goes badly in 2016. Probably more. Don't let that put you off investing – it's the average that counts!

There's nothing new in investing

If there's one thing I know, it's that another huge potential risk for the economy and the markets will reveal itself in 2016. I also know it's unlikely to be the thing we most worry about today. Remember the risk posed by Greece? Ukraine? The US federal government's budget deadlines? Fiscal cliff? China's imminent crash? I'm not saying some of these weren't reasonable things to be mindful of, but in the event, none actually caused much damage. Those who avoided investing because of those potential risks has missed out on the investment gains made in the interim.

Watch out for: The cause of the next downturn is unknowable. The timing is unknowable. And the size of the impact is, well, you get the point by now.

Foolish takeaway

OK, that's the serious advice. What about some reckless predictions? I'll be surprised if oil and iron prices recover meaningfully. I think the banks and miners will continue to weigh on the index, meaning mid caps and small caps will probably outperform. I'd guess the Aussie dollar will finish 2016 lower than it starts. And I confidently predict that at least one of those preceding guesses will be wrong!

If you find yourself – like Wile E. Coyote – in midair but still running – it's probably not going to end well.

In 2016, the best advice is, as always, to prepare, not to predict. That means not speculating, not expecting the laws of economics or investing to be suspended, and to not chase the latest "hot tip". Prepare to be surprised, know that you'll lose money in one of every three years, but that 2016 will be one of many, many more – during which, if history is any guide – investing in well-chosen, quality companies could deliver handsome gains.

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Scott Phillips is a Motley Fool investment advisor. You can follow Scott on Twitter @TMFScottP. The Motley Fool's purpose is to educate, amuse and enrich investors. This article contains general investment advice only (under AFSL 400691).

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