James Hallett

When I was a kid, my friend Chuck got a Oujia board for Christmas. We were fascinated by its ability to see into the future. Fortunately, we learned not to rely on the game's prognostication.

It's a good thing that financial planners and advisors aren't paid to predict the future because nobody seems to be doing a very good job of it lately. I hope you'll remember this as all the major financial magazines come out with their yearly "Here's what will happen in 2010" cover stories.

Reading through some back issues, I found that at this time two years ago, nobody, anywhere, predicted a fourth-quarter meltdown in the investment markets or the global economy tottering on the edge of disaster. In fact, not a one of the "prognosticators" realized that the U.S. economy already had fallen into a recession.

If you read those magazine issues before the markets suddenly went into a 400-point freefall in two trading days (triggered, you probably remember, by the collapse of Lehman Brothers, the AIG bailout and the federal rescue of Fannie Mae and Freddie Mac), you realize that nobody had a clue that a storm was brewing on the horizon.

The Wall Street Journal talked confidently about Lehman's efforts to secure a line of credit or divest some assets, and the consensus seemed to be that the damage from the burst housing bubble had been contained safely. Postmortem articles about the crisis show that the Federal Reserve Chairman Ben Bernanke and Treasury Secretary Hank Paulson, who both watched the economic numbers daily, were caught totally flat-footed.

In January 2009, these same economists and pundits were talking about the possibility of a sustained market drop similar to the slow investment torture the Japanese have experienced since 1989. Kiplinger's magazine identified the people who had been most right in their 2008 predictions and asked them what they thought was going to happen in 2009.

Not a one of them predicted what actually happened: a dramatic rise in stock prices (the S&P 500 touched bottom on March 6 with an intraday price of 666.79 and rose to over 1,100 currently), a sharply rising dollar and an end to the economic recession - what economists are now describing as a jobless recovery.

The hardest part about investing is controlling the natural urge to sell when the market has cratered or to buy when the market is euphoric. But that's like going to the mall and waiting to buy until all the sales are over and prices have gone up and then, as soon as the store has its next 25-percent-off sale, going back and selling whatever you bought for less than you paid. Nobody would even think of doing that with his or her holiday gift purchases, but it's normal behavior in the investment markets.

The truth is neither a Oujia board nor any person totally can foresee the future. The investment markets tend to be far less predictable than other areas of our lives. Like it or not, we venture blindly forth every day, control what we can control (investment costs, taxes and savings rates) and generally make more money in the upturns than we do in the downturns.

Years ago, a pundit threw up his hands and said: "I don't know what the markets will do tomorrow or next week or next month. But I do know with certainty which direction the next 100-percent movement in the markets will be."

There, finally is a prediction I can endorse.

Happy New Year!



James D. Hallett, Hallett & Associates, P.S., is registered as an investment adviser with the SEC and only transacts business in states where it is properly registered or excluded from registration requirements.

This column is for informational purposes only and should not be used as the primary basis for an investment decision. Consult an advisor for your personal situation.