For investors, the prediction and lookback entertainment season is here. Over the next fortnight or so, you will be subjected to a vast amount of articles, TV shows and social media posts which will look back at what happened in 2022 - which is completely useless - and/or will look ahead to what will happen in 2023 - which is completely inaccurate. Take your pick - my choice would be to either ignore it all or just laugh and move on.
Readers should appreciate that predictions are purely a product of the so-called attention economy. The way to get attention is to say something surprising, or shocking, or something that creates an impression that you have some immense insight. If you say that at the end of 2023, the highest probability is of the equity markets being up by about 10 per cent with some plus-minus, then hardly anyone is going to pay attention. No clicks, no likes, no retweets, nothing - you will be a pauper in the attention economy.
On the other hand, if you say that the global markets are set for a bad time, and there is a 67 per cent probability that at the end of 2023, the Sensex will be somewhere between 45,923 and 55,865, then you will get the clicks, the retweets and the likes. You will be rich in the attention economy. Therefore, please take that as my prediction for December 31, 2023. But remember, I said 67 per cent - so the remaining 33 per cent probability of the Sensex not being in that range is ALSO part of my prediction. Don't come complaining to me if the Sensex is not within that range - my prediction will be 100 per cent accurate. Guaranteed.
However, jokes apart, it's self-evident that being able to forecast economic and business trends genuinely should be an advantage for investors. What kind of forecasts get you a real advantage, and is there any reasonable way of getting them right?
In fact, the answer to this question becomes clear when we look back into the past and see what was predictable and what was not and WHAT has actually had a real, lasting impact on wealth generation through investments. In the late eighties, could you have forecast the astonishing rise of Indian software services? Was the rise in urban Indian living standards predicted by anyone? In 1995, was the coming drop in interest rates and the easy-money economy predictable? Was the resultant housing boom predictable? The auto boom? In 1996, when a basic mobile phone cost Rs 20,000 (Rs 2 lakh in today's money), did anyone correctly predict how many mobile connections India would have in 2022? 10 years ago, did anyone predict the extent to which digital transactions would take off?
These are trends that fundamentally altered large, significant parts of the Indian economy. Moreover, they have a lot of momentum behind them. Once they get going, they run for decades. I would say that sensing the depth and momentum of such large, transformational changes is what is important. The one thing you can be sure of is that knowing some market direction for the next year is not going to cut it.
As for your own investment plans, in the absence of a crystal ball, the best thing to do is do things that will always make sense, regardless of whether it's for 2023 or 2033 or 2043. And what's that? Investors should map their future financial needs along a time scale. This is not difficult as major expenses tend to be predictable. All money that will likely be needed for the next two to three years or so should be kept in fixed-income investments. These could be government small-savings schemes or debt mutual funds. All investments intended for a longer period should be invested in a small (four or five, at most) number of diversified equity funds and balanced funds. These investments should obviously be made not in fits and starts but gradually, using a SIP. This strategy is simple and effective. Apart from these investments, you should be prepared for emergency expenditures as well as with term and health insurance.
If these basics are done, then knowing accurately where the Sensex will be at the end of 2023 will be useless. And if these are not done, then it will still be useless.
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