How to Forecast With Confidence and Stay Nimble

Prediction season is upon us...

The first month of a new year comes with a sense of a fresh start. Folks often try to figure out the next big stories or themes.

They make predictions about what fashion trends will dominate... which sports teams will win their championships... and, closer to the investment world, whether the markets will trend up, down, or sideways.

We attribute extra meaning to predictions made at the beginning of the year. We believe that the timing gives them extra weight.

And of course, it's a huge vindication to look back 12 months later and say, "I told you so!"

That's why it can be so humbling to reflect on the past few months – or even the beginning of last year – and find out that the predictions you made were dead wrong.

As an investor, you always want to think outside the box and build better ideas. That's tough to do when you feel so confident about something... only to have it not pan out.

However, that's also one of the most important lessons you can learn on your investing journey.

Today, I'll explain one of the best ways you can improve your judgment in the markets... and how to learn from the times you get it wrong.

I was too early in early 2022...

At the beginning of last year, many of our clients had the same questions on their minds...

What will the market look like in 2022?

What's your prediction for where things are headed?

We were incredibly bullish on the stock market. Over the mid- and long term, we still are.

In the first few months of last year, we published numerous articles to that effect. We told subscribers to ignore the "doom and gloom crew"... and advised them not to panic when the Nasdaq entered correction territory.

Despite the time I spent at the Pentagon, we couldn't have predicted how severely the Russia-Ukraine war would hurt supply chains and worsen inflation.

We also couldn't have forecast China's heavy zero-COVID policies, which further slowed the supply of goods and drove up inflation.

I said openly that the U.S. equity market had 30% upside. The overall foundations of the U.S. economy were (and remain) incredibly strong.

However, the tumult of 2022 pushed that 30% upside further into the future.

The question for me is not if the U.S. equity market has significant upside. It's when that upside will be realized.

As I often say, we can't let pride cloud our judgment. That means admitting our mistakes.

Timing is the key issue at hand...

Stanford University professor and technology forecaster Paul Saffo has a mantra for the forecasting process... "Strong opinions, weakly held."

Using the data you have available at any given time, you should hold your opinions – or predictions – with conviction. Be sure of what you believe in the moment.

On the other hand, there's a high degree of uncertainty in the market. The data changes all the time.

That's where "weakly held" comes in. Don't get too attached to your opinions or predictions. Be willing to change as the data changes.

Our Timetable Investor report was a great example of shifting trends and new data last year...

The Timetable Investor takes all the up-to-date macroeconomic data and provides grades in areas like credit health, earnings growth, and valuations. It's a way to track the monthly changes in the health of the market.

In January 2022, all the data suggested we were primed for strong earnings growth. By December, earnings growth signals were getting weaker. We knew that would mean a volatile 2023 with as much chance of downside as upside for U.S. equities.

The foundations of the U.S. economy remain strong. We're the world's No. 1 food supplier... No. 1 energy supplier... No. 1 aerospace and defense supplier... I could go on and on.

U.S. companies are coming out of 2022 with plenty of opportunities. That's where our conviction remains strong.

In all likelihood, America will become even more dominant in the global economy from here, given the current state of international affairs. That's very bullish for the U.S. in the mid- and long term.

However, we wouldn't recommend putting all your money into U.S. equities right now. The data has changed, and so have our opinions.

Our current recommendation for spreading out your investments is 20 months. That's the longest time frame we've advised in Altimetry history.

(By the way, we just released our January Timetable Investor report yesterday. If you're interested in getting access, click here to learn more.)

There's a key lesson here for investors... and decision-makers of all kinds.

To improve your judgment, you have to suspend your judgment – as much as reasonably possible.

My favorite author, Dr. David R. Hawkins, has a saying... "All knowledge is provisional."

In other words, we only know what we know now. And we often find the reality of that knowledge to be different later.

Embrace changes in the data. Be confident and make predictions... as long as you leave room for correction in the future.

We're starting the year by calling for a sideways and volatile stock market. We still think a recession is coming in 2023 or early 2024.

That doesn't mean all hope is lost for investors. These difficult times will make for incredible buying opportunities. Investors will be able to scoop up the greatest stocks from the greatest companies in the greatest economy in the world.

If you're patient, you'll be able to capture incredible profits in U.S. equities over the next few decades.

That's a strong opinion... and we're willing to change it as we get more data.

Wishing you love, joy, and peace,

Joel
January 27, 2023