Predicting the Stock Market is Hard

by WCE

Last year at this time I published my prediction for what the stock market might return in 2020: it would likely be up but it was possible that it would be down. I made this prediction based on historical data that the market is up about two-thirds of the time no matter what happened the prior year.

My prediction for what the market will return in 2021 is the same as my 2020 prediction: it will probably be up, but it might be down.

What Will The Stock Market Return In 2021?

31 thoughts on “Predicting the Stock Market is Hard

  1. Along the same lines here is an interesting story. Long story short a wealthy 93 year old widow sued J.P. Morgan and her grandsons for mismanaging her assets. The crazy part is, as some in the family mentioned, as her heirs they would have been better off sticking with index investing than with all the churning and bad investments they used to try and boost their earnings.

    https://www.bloomberg.com/news/features/2021-02-17/at-93-she-waged-war-on-jpmorgan-and-two-financial-advisors-her-grandsons

  2. Rhett – I saw that! I have had clients with such bad experiences with JPM, it brought back those memories – structured products with high fees, excessive trading, diversified GRATs, etc. I knew that they knew they were in trouble when they brought a compliance person to one of our follow-up meetings – she had to keep putting her pencil/hand on the banker’s arm to make him not talk!

  3. L,

    I assume this kind of thing happens with heirs as well when it’s there money. Much like lottery winners they don’t want boring investment options. They want to invest in or start businesses so they have something to do. Or as Kerri mentioned something to feed their ego and make them feel like big shots.

  4. This is an unbelievable story, but this can happen at other financial institutions. When we first had DD, we met a lot of new people through baby classes etc. Everyone had one kid so the parents would show up at every bday party together so we got to know the other families. It was also very intimate because we attended play groups and parties in each other’s homes all of the time. One family had a home that just didn’t add up. We always joked that we were going to see the guy on the local news channel being escorted out in handcuffs because he was doing something funky with his money. I will never forget how he was bragging to us about his mortgage from Chase. He actually said the bankers were so dumb because he was getting “free money”. I laughed and I told him that there is no such thing as free money at any bank. This was 2005 so it was before the crisis and he locked into one of those variable rate deals that was based on Libor. I asked them if they understood Libor and they both told me that they had no idea. This was a small account compared to this woman, but stuff happens at all levels in almost every bank. There were very similar stories about churning of accounts at Wells Fargo.

    The thing that was shocking to me about this story is that there should have been more oversight from the managers of these guys. This is where I do think the bank should be responsible for their greed. These managers and their managers all have to have a license (Series 7 and 63) to work in the securities unit. I am sure the grandsons violated many rules, but their supervisors would have also held licenses which requires them to supervise the staff – AND that includes looking at the accounts. There is a huge compliance department at JPM and it seems like a lot of people at this bank were not doing their jobs.

  5. Related, since the stock market is just a form of gambling, I placed my first legal sports bet this weekend. It’s on the Dodgers’ win total for the season, so I won’t know if I win until September. The over/under is 103.5 and I took the under. I think it’s too easy for something to go wrong and they win “only” 102 games.

  6. https://www.refinery29.com/amp/en-us/customer-success-manager-alexandria-va-salary-money-diary

    I think some of you occasionally read those personal week-long money diaries. This was posted on another forum with a lot of resentment, perhaps hatred, toward the featured couple, mainly because they’re married, late 20s, and were well set up by a $100k inheritance and, maybe $15k – $30k annually from a grandparent.

    What stood out to me is that, for the most part, they don’t seem to be doing anything crazy with it. They live in a $500k townhouse in Alexandria and they make a combined $200k annually. They get an extra $10k and throw it at the mortgage principal.

    Also, I thought, this is more or less what a lot of us have talked about doing for our kids, if things go well. So I think the moral is, if you’re in this situation, keep your mouth shut about it, at least outside of anonymous forums.

    On topic, it would probably be a good thing if the stock market levels off for a few years and lets earnings catch up to prices.

  7. Lauren,

    But how does it work in practice? My understanding is that big producing brokers are constantly moving from firm to firm to get a larger cut of the commissions/fee revenue, less supervision and paperwork, etc. If you’re a manager who is a stickler for the rules and your big producing brokers leave then you get fired, right? There is a pretty big incentive to look the other way as much as possible.

    In another instance:

    Credit Suisse Group AG overlooked red flags for years while a rogue private banker stole from billionaire clients, according to a report by a law firm for Switzerland’s financial regulator.

    https://www.wsj.com/articles/credit-suisse-was-alerted-to-private-bankers-misconduct-years-before-criminal-charges-11612462705

  8. I assume this kind of thing happens with heirs as well when it’s there money. Much like lottery winners they don’t want boring investment options. They want to invest in or start businesses so they have something to do. Or as Kerri mentioned something to feed their ego and make them feel like big shots.

    I did the opposite when I was managing Mom’s money. I knew my dad had been crazy conservative. He would have put everything in T-bills if he could have, but he’d inherited some stocks and mutual funds from Grandma so he just let them sit. I occasionally tried to force myself to put some of the cash into index funds, and occasionally I succeeded, but mostly I was afraid to upset my deceased father. I managed the money from 2004 to 2013, and if I’d stuck more of that cash into index funds, my sister and I would have come out a lot richer. We have nothing to complain about, but I do sometimes kick myself for not being a little more aggressive.

  9. Rhett, this is supposed to be like the dark ages where someone is reviewing ledgers every night. JPM should have sophisticated systems that are in place to catch this sort of activity. There should have bene something in their systems that shook have flagged this account. There was some mention of this in the Bloomberg story, but since the grandkids were setting up the accounts, they took some of the warning flags off. For example, even her credit card accounts might have raised some suspicion if they were set up properly.

    Also, the brothers flagged her account to allow those aggressive investments. The bank doesn’t usually just let this stand forever. Someone should have been looking at this at least once a year to make sure that the investor was still a sophisticated investor that understood those transactions. The problem in this case and all of the stories that I read about Wells Fargo is greed. The managers and even the group that these guys belonged to profited from the churn on this accounts. It always comes down to hitting the numbers in these banks. Monthly, quarterly and annual targets. If you hit the target,then no one yells at you. Also, if you reach these goals, then you are personally rewarded. The back stop should be the managers, but especially the Compliance department and the systems. The banks were slapped with huge fines in past years for this type of activity and they are supposed to have technology that should catch this activity most of the time. In a situation like this, where the employees are family – that is a recipe for fraud and manipulation.

  10. Milo – did the $10k transfer from checking to mortgage payment stir people’s resentment ? I noticed it’s shown as “spending”. Other than that the restaurant meals were similar to what we did in our 20s. We had no house cleaner though. It is only during the pandemic that we have eaten so many home cooked meals. We never brown bagged our office lunches.

  11. RMS – your dad and DH’s dad both! He had his retirement account sitting in a money market account throughout the 90s…

  12. Louise – i think she said it was mostly due to a bonus from one of their employers, and suddenly there was an extra $10k in their checking account, so she made an extra principal payment.

    I get the frustration that some readers have because with money, you can spend so much time and effort trying to optimize and sacrifice, and your entire outlook can easily be changed by saving $20k. But then you’re reading your regular blogs and here’s someone who gets $30k every year for nothing. That’s the problem with money — that the situation can be so vastly different from one to another, people try to have these places to discuss it, but some are playing an entirely different game.

    Anyway…I have a new favorite YouTube channel for a background display. A few miles north of Miami is Haulover Inlet, connecting the Atlantic Ocean to Biscayne Bay. There’s so much wealth down there in yachts that this camera crew just sets up and films boats coming in and out. No commentary, no music. Hundreds of thousands of views for every video. Also, when they’re filming during an ebbing tide, the water flowing out of the bay mixes with the incoming swells of the ocean and can create enormous waves that toss people around.

    And, I had no idea how ubiquitous the thong bikini was in Miami.

  13. I cannot “set and forget” as the Target Date funds are set up to encourage.

    Over time, rolling 10- 15- 20-year periods the equity markets have (almost) always provided at least nominally positive returns. On the 20-yr end the returns realized have been real positive returns, i.e. net of inflation.

    I keep this in mind and don’t try to predict what a given year, 2021, will do. No clue.

    Figure out a mix of investments that you are comfortable with
    equity/fixed income (e.g. balanced funds or x% in an index stock fund and y% in an index bond fund)
    domestic/international (pick a global stock and global bond fund)
    giant/large/mid/small/micro cap companies (you can get’em all with a total stock market fund/etf)

    Make your contributions every pay period; check that the asset allocation is in line with your strategy every 6months or so.

    And set aside a portion of your portfolio, I use 5% of total value, for “special situations”, where although I know trying to time the market is dumb, I will make a small investment in pot stocks, Tesla, GameStop, whatever.

    I like to read Barrons every weekend to keep an eye on what the touts are pushing; there’s always something to consider in updating the long-term strategy.

  14. We met with a financial planner last fall and she helped us out a lot. DW and I are both spenders by nature so saving doesn’t come easily to us. And we don’t know much about investing beyond index funds. So she helped us diversify a bit and gave us some reassurance that we aren’t doing too badly.

  15. We don’t have enough assets to qualify for advice other than very plain vanilla which we do our own anyway by keeping balances in index funds. At one point I got an advisor but that meant fees every quarter with no real value add from her. There wasn’t things that she could say like pay down your mortgage, cars, credit card. I was probably looking for a Scrooge advisor who would tell me not to go to Starbucks and brown bag my lunch.

  16. “We don’t have enough assets to qualify for advice other than very plain vanilla which we do our own anyway by keeping balances in index funds. “

    You don’t need a lot of assets for robo advising. Schwab minimum is $5k, with no advisory fee.

    Hmm, I should try this with some of our money there.

  17. “married, late 20s, and were well set up by a $100k inheritance and, maybe $15k – $30k annually from a grandparent.”

    That amount from a grandparent sounds like trying to avoid estate taxes, giving near the max allowed without triggering tax issues. My parents did something similar to fund grandkids’ college funds.

    “They live in a $500k townhouse in Alexandria”

    Interesting how the $100k inheritance would be just the right amount for a down payment on that.

    “Also, I thought, this is more or less what a lot of us have talked about doing for our kids, if things go well.”

    Or what our parents have done for us and our kids.

    “So I think the moral is, if you’re in this situation, keep your mouth shut about it, at least outside of anonymous forums.”

    Mostly agree, but among friends/family in similar situations it can be good to discuss so you can learn from each other. E.g., I can discuss this sort of thing with my sibs because our parents treated us similarly and were open about it.

  18. Digression…replacement windows.

    It’s (beyond) time. 20 double-hung. I’ve been looking at lots of brands, gotten 3 quotes and I’m getting a 4th on Saturday. For those of you who have replaced windows in the last few years, and I know NoB just had hers redone this year, what brands and series/models did you go with? I’ve gotten quotes averaging as low as $850/opening installed (Silverline) to $1850 (Pella 350). Both of those are out of the running. Marvin Elevate series is the current #1; let’s see what that quote is. Why did you pick what you picked?

  19. We picked Marvin for our upstairs windows for the price point — we were happy with vinyl-clad up there, and they seemed really solid (sorry, forgot which ones!). We used Loewen for the downstairs windows in the reno because we LOVED them (but they were massively expensive), and then either Marvin or Anderson for the remaining downstairs (where we needed the natural wood finish) — sorry, I forget which.

    The Marvins have held up very well, btw — some of them better than the Loewens.

  20. Milo, I had a chance to read that spending diary and skim the comments.

    She seems quite totebaggy overall. I hope my kids are as grounded and sensible at that age.

    The comments didn’t seem very snarky at all to me. I’m guessing that reflects a difference in the readership of the link you posted and the other forum you metioned with the resentful comments.

  21. We did Andersen when we built and we’ve been very happy. We are 8 years in, so maybe it’s not long enough of a test, but there is nothing that tells me that we will have to replace them.

  22. I’m sorry. I don’t know exactly where I was spacing out to, but we built our house 14 years ago.

  23. Our contractor used Pella in two rooms. I do not like the windows. One window completely failed and there is mold between the two panes.

    We have Andersen and Marvin for other windows. No problems and the choice was based on the price at the time that we bought the windows. Marvin and Andersen generally give 25 year guarantees for the composite windows that we bought for other rooms.

    I am having my water heater replaced today. My plumber told me that he would be here between 8:30 and 8:45. He never mentioned that two other guys were goign to show up an hour earlier to take away the old water heater. This was a hassle because I thought I had at least 30 minutes to move my cars and use water. I had to scramble because one car was covered in snow and ice from yesterday’s storm.I hope this installation is fine because it is the first time that I am using this plumber for something major because my former plumber retired a couple of years ago.

    On the topic of plumbers, the stories on the national news and in the newspapers about the shortage of plumbers/plumbing parts in Texas and OK is nuts. We had to wait 6 months to get a window after Sandy due to shortages so I assume that some of the same shortages may start to occur with plumbing supplies.

  24. “One window completely failed and there is mold between the two panes.”

    It was about 30 or so years ago, but the first house DW and I bought together was a new house in a small subdivision. Within a couple years, some of our windows had condensation between panes, and that was a common problem among all the homes.

    Fortunately, one of the homeowners looked into it and found the windows were warrantied, and information was disseminated via the HOA, so we all got those windows replaced at no cost to us.

    Moral of the story is to include warranty coverage in your search criteria. Consider not just length of warranty, but also whether it includes labor costs to replace windows.

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