Ten share market predictions from 2023 and how they turned out

It amazes me that the finance industry is still debating the clairvoyance of professional fund managers when it comes to predicting future share prices.

The evidence, as illustrated in the S&P SPIVA study year after year, unequivocally shows that they have no predictive ability.

To put it bluntly, less than 20% of these fund managers manage to outperform the market over periods spanning at least five years. And when we factor in taxes due to the hefty portfolio turnover caused by active funds, that number plummets to below 10%.

At Stockspot, our own research paints a similarly grim picture – less than 10% of Australian and global funds have managed to surpass the index over 5 years.

But here’s the rub: predictions in the financial world are rarely held accountable. In most fields, if someone consistently makes inaccurate predictions, they might find themselves with dwindling credibility and less airtime. However, in the financial markets, it seems to work quite the opposite way. Those who are willing to make predictions, regardless of their past accuracy, are continually granted a platform to deliver their supposed foresight. The accuracy of past predictions appears to have little bearing on the faith we place in expert forecasts.

In this article, I review ten forecasts made by fund managers in the Australian Financial Review last December and measure how they performed compared to the market index over the year.

Over the year to December 11th 2023, the Australian share market ETF (VAS) has delivered total returns of +7%, and the global share market ETF (IOO) has returned a solid +27%.

The burning question is, how do these so-called “highest conviction” predictions from the experts stack up against the broad market gains?

How did the predictions turn out?

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Fund manager	Tribeca Investment Partners
Top stock idea	Ramsay Health Care (RHC)
Stock performance	-22.1%

Fund manager	Lanyon Asset Management
Top stock idea	Shiseido Co Ltd (4911.T)
Stock performance	-40.7%

Fund manager	Wilson Asset Management
Top stock idea	Nexted (NXD)
Stock performance	-40.3%

Fund manager	Ellerston Capital
Top stock idea	Cellnex Telecom
Stock performance	+18.1%

Fund manager	Regal Funds Management
Top stock idea	RPMGlobal
Stock performance	-10.3%

Fund manager	Firetrail Investments
Top stock idea	Seek
Stock performance	+20.6%

Fund manager	Plato Investment Management
Top stock idea	Moderna
Stock performance	-52.6%

Fund manager	Sage Capital
Top stock idea	James Hardie Industries
Stock performance	+89.4%

Fund manager	Nikko Asset Management
Top stock idea	Compass Group
Stock performance	+18.2%

Fund manager	Antipodes Partners
Top stock idea	TSMC
Stock performance	+41.1%

The final tally

There you have it, out of the ten fund manager recommendations, five showed strong performance, while the other five stumbled. Interestingly, only two of these recommendations managed to surpass the straightforward strategy of investing in an ETF that tracks the top 100 global companies.

If you had followed all ten of these recommendations at the beginning of the year, evenly distributing your investments across each of them, your portfolio would have trailed behind both the Australian and global stock markets. This not only would have resulted in lower returns but also likely led to sleepless nights filled with anxiety as you awaited earnings results from your concentrated positions.

And as for that Apple short (sell) suggested by L1 Capital—well, it ended up rising by an impressive 55%.

Well, I think there are two main reasons:

• They believe in it: I suspect some fund managers genuinely believe that these predictions are useful. Maybe they’re a bit too confident in their abilities, or they just like the idea of trying to figure out what’s going to happen because it’s like a puzzle that they find enjoyable to solve.

• It’s part of the job: For a lot of fund managers, making these predictions is just part of their job. Whether they think it’s useful or not, they have to do it because it’s what they get paid for.

The alternative to listening to predictions

The evidence overwhelmingly supports the notion that stock market predictions made by supposed experts are no more reliable than a simple coin toss. While they may be entertaining and intriguing to read, these predictions offer little value in terms of generating actual returns. For investors, it usually makes more sense to invest in an index ETF rather than rely on the forecasts of fund managers.

So, why do we persistently pay attention to these predictions year after year?

Based on my observations, people naturally gravitate toward narratives and have a strong desire to make sense of the world. We have come to expect financial experts to possess the ability to predict the future, even though the future is inherently uncertain and unknowable.

Furthermore, many investors mistakenly attribute a fund manager’s successful predictions to genuine skill when, more often than not, it’s simply luck in disguise.

At Stockspot, we recommend preparation rather than prediction. We believe that the best investors are those who have the humility to acknowledge the unknowable nature of the future and the discipline to adhere to an investment strategy that embraces this reality.

Our strategy is straightforward: invest in a diverse mix of low-cost index funds for the long term, and tune out the noise.

In essence, focus on what you can control and leave the things you can’t to the wayside.

I believe this approach not only aligns with the evidence but also offers a more sensible and sustainable path to financial success.