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Why Equity investors should ignore market predictions

Investment gurus like Warren Buffet and Peter Lynch have been quite vocal about people making forecasts about the economy or the markets. That’s because market is not predictable in the short-term.

“I know what markets are going to do over a long period of time: They’re going to go up. But in terms of what’s going to happen in a day or a week or a month or a year even, I’ve never felt that I knew it and I’ve never felt that was important,” Warren Buffett

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In defiance of what the legendary stock market investor Warren Buffett has got to say, these headlines often flash in the media. At the start of the year, on their part, brokerage houses, give annual Sensex target, creating quite an excitement about what stocks to buy (and what not). Television channels in turn drum up the energy levels by playing the bulls against the bears. 

Does market forecast really help investors in making better investment decisions?

Market is Unpredictable 

Investment gurus like Warren Buffet and Peter Lynch have been quite vocal about people making forecasts about the economy or the markets.  That’s because market is not predictable in the short-term. 

Indian equity market – as measured by Sensex, in its 40-year history, has had a productive journey – giving a CAGR of about 16% to its investors. With a five-year or a 10-year investment horizon, investors would have pocketed 16% per annum, assuming investments are made at the beginning of the year. 

Predicting equity markets over a year or two has been found to be next to impossible. At best one can look at its historical performance and valuations and make a conjecture about long-term return expectations – as Buffet does. 

Casino traits

However, Sensex performance is as unpredictable as a Russian roulette, when analysed from a yearly perspective. 


If we categorise each calendar year’s performance since 1980 into that of ‘negative’ (negative return), ‘moderate’ (0-25%) and ‘strong’ (> 25%), the number of years is somewhat evenly distributed among these categories. While one’s prognosis about Sensex could be correct for a year or two, doing it consistently would be a stretch.

Black Swans


In the past, analysts failed to predict the big downturn– led by black swan events (an extremely rare event with severe impact on the economy). Indian stock markets have had their share too.

After liberalisation of the economy, Indian stock markets got its first jolt in 1992, led by the Harshad Mehta scam. In 1995, it was the IPO scam, in 1998 the Asian Financial Crisis, 2000-2001 the Internet bubble and Ketan Parekh scam. And the Global Financial Crisis of 2008 and 2G Scam of 2011 followed thereafter.

All these events roiled Indian markets, taking investors by surprise. Forget stock market analysts, even International Monetary Fund, the European Commission and the US Federal Reserve missed the Global Financial Crisis. 

Predicting equity markets over a year or two has been found to be next to impossible. At best one can look at its historical performance and valuations and make a conjecture about long-term return expectations – as Buffet does. 

Stay focused

The only thing that matters for long-term investors is that – if the economy grows, the companies operating in the economy will also grow and investors in these companies will also do well. 

Buffett once said, “If you hold on to a diverse selection of stocks for long enough, then the market should eventually trend upward”. So, buy a diversified set of such companies easily, and best, done by investing in good equity mutual funds to participate in the equity journey. Through all these crises events, your portfolio should grow as the economy grows. 

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