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Shareswatch Blog: hits and misses of 2008.

January 6th, 2009 · Greg Atkinson · 3 Comments

There is something you should have noticed by now about most of the finance and stock market related news websites and that is; they are great at picking the best and worst investment events of the past, but they say very little about how accurate their analysis of events were throughout the year.

At the start of a new year the various “market experts” reflect on the events of the past year and yet seldom (if ever) do they mention any of the errors they made in forecasting how events would unfold, although they gleefully point out the mistakes made by CEO’s, corporate high fliers and politicians etc.

If during 2008 a prominent market expert or commentator got something right, then we will hear about it again and again in 2009, however if they were off the mark they quietly continue to bombard us with their “expert views” and pretend their almost faultless record remains intact. It seems journalists and politicians share a common characteristic in that they find it hard to admit they are ever wrong, and hence the reason I treat what both professions tell me with a healthy amount of skepticism.

But at things are different and I am quite willing to highlight where I totally messed up, in addition to mentioning a few things I hopefully got right it 2008.

In case you think I might be cheating, here are the links to the articles outlining my main assumptions and forecasts for 2008:

March 2008: –  Are we near the bottom?

July 2008: –  Forecast for 2008: review and update

So without further ado, let’s look back on some of the comments I made in the shareswatch blog in 2008:

The US will enter a period economic slowdown.

Even though some pretty influential people (like the team at Gavekal) were saying that the U.S might avoid a recession, I maintained my view through out the year that the U.S economy would slow and possibly enter a recession. Of course as we know now the U.S is in recession and it looks like a nasty one.

The global economy will slow in 2008.

This turned out to be a good call. Remember when I first wrote this in March there were plenty of people saying that China would keep the global economy ticking over and that the U.S would avoid recession. Remember the how many experts were telling us the global economy was decoupled from the U.S? I wonder where they are now?

The Australian economy will slow further.

Now this may not seem like a particularly insightful comment now, but again I wrote this in March 2008 at a time when we had Kevin Rudd fighting a “war on inflation” and Glen Stevens at the Reserve Bank of Australia still raising interest rates.  So they were worried that the Australian economy was over heating and I was worried the economy was heading for a fall. It seems I was eventually proved correct but at the time , a few people told me how wrong I was because China would keep the Australian economy in good shape….seems that little dream is starting to fade.

Commodities hard and soft will continue up their upward price trend.

Well they did for a while, and then come crashing down. To be fair I did start to get nervous about the commodities boom in the middle of the year and suggested investors stick with quality mining stocks. The main blunder I made here was that I thought money would come out of mining stocks and move into financial stocks. Of course when Lehman Brothers failed in September the entire stock market went into a tailspin and no stocks were safe, especially financial stocks. However I am still a long term bull in terms of commodities hard and soft.

The credit crisis will pass into history later this year.

What can I say…can I hide somewhere? We can only speculate what would have happened if Lehman Brothers was not allowed to fail in September. Perhaps if Lehman Brothers had been saved then the the financial markets would be a lot healthier by now? But this corporate failure (the biggest in U.S history) just highlights how risky forecasting is, although we do need to make some assumptions and forecasts so we can plan out investment strategies. However even our best thought out plans are subject to be made totally null and void by unexpected events…that is why you also need a plan B.

So how did I do?  Well in my view I did okay although I under estimated how bad things would get and thought the ASX All Ords would bottom out at around 4800. For some time that looked possible, but as we know now we had the second plunge into the murky depths in September and that was a major unexpected event. (although I am sure some people will say they saw it coming)

But we now have another year ahead of us, a chance I hope to cover some of our losses and hopefully see the stock market stabilize. If you are a long term investor then the stock market is a multi year investment strategy, so put 2008 in the filing cabinet and focus on the year ahead. If history repeats itself then we should end the year in positive territory and see an end to the bear market.

3 responses so far ↓

  • 1 Steve // Jan 8, 2009 at 11:20 am

    Nice job. Good to see you’re happy to put yourself under scrutiny.
    I look forward to reading and participating in this blog this year.

  • 2 Scotte // Jan 9, 2009 at 12:16 am

    What is going on with the USD and the AUD?

    For the USD, why is it rising when typically a country in recession and as much trouble with bailouts and bancruptsy would see the value plummet.

    Why has the AUD lost so much value. No not against the USD that so obvious beacuase the USD is rising, but against s0 many other currencies, about 25% or more against them. Why is it the AUD that has dropped so much against the ROW (rest of world), is Australia so dependent on Japan?

  • 3 Greg Atkinson // Jan 10, 2009 at 10:39 am

    Scotte, I am not an exchange rate/FOREX expert but some of the reasons why the Australian dollar has been weak is due to the fall in commodities prices and also because of the interest rate cuts made by the RBA. In regards to the AUD/Yen, this is largely due to the unwinding of the “carry trade”. Falling asset prices and interest rates in Australia are bad news for the Yen carry trade.

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