At this time of the year, the papers and Internet are filled with predictions for the year ahead. Pramit Ghose’s surprise predictions for 2010 got me thinking that it is always interesting to look back and reflect on how the predictions of this time one year ago panned out!
First a definition: A ‘surprise’, as coined by renowned US investment strategist Byron Wien, is an event that consensus opinion thinks has only a one-in-three chance of happening, but which the author thinks has at least a 50% probability of occurring.
As a sidenote, isn’t it interesting that investment gurus have to define a concept as simple as a surprise? My kids fully understand it without having to put a metric on it!
Let’s have a look back at Mr. Ghose’s ‘Surprises’ of 2009 which were first published one year ago. Pramit is a fund manager with Bloxham that we consult with regularly. We like his approach where he actually gives a view: many fund managers hide behind the consensus view or put in so many caveats that the underlying opinion is worthless.
Surprise Number 1. The US stockmarket bottoms out in February … with the S&P 500 Index reaching 1,100 points at some stage over 2009.
This was an amazingly accurate forecast especially when one considers how many commentators, journalists and economists were forecasting total meltdown in Markets. The S&P 500 bottomed on 9th March at an eerie 666 points, and then rallied strongly up to 1,115 at year end. Pity was that most of us were afraid to back this prediction!
Surprise Number 2. Takeover/Merger activity improves dramatically.
While we did see some large scale activity such as Kraft/Cadbury, Pepsi/Pepsi Bottling, Oracle/Sun Microsystems, I don’t think there was as dramatic a rebound as forecast.
Surprise Number 3. Oil Prices to double to $75 a barrel.
Another great call given oil was around $40 at the start of 2009, and is now around $80. We in FBD had a structure that offered the upside of oil with full capital security provided the oil price didn’t drop below $20. We wish we had done more business into it but those who took the plunge are doing very, very nicely!
Surprise Number 4. Sterling rallies to the £0.75 – £0.80 range vs. the Euro.
Not quite spot on, but not too bad; Sterling started the year close to parity, but by June had rallied to £0.84 vs the Euro, before retreating a bit to £0.89 at year end.
Surprise Number 5. The ISEQ underperforms global equity markets in the first 9 months of 2009, but has a big rally in Q4.
Wrong way round on this one – the ISEQ rallied 43% in the first 9 months but lost 11% in Q4. No marks here!
Surprise Number 6. Defined Benefit pension schemes tackle their liabilities.
Higher member contributions and/or reduced benefits become the norm in 2009. However, we don’t think this was much of a ‘surprise’; even my kids could have predicted this!
Don’t forget to check out Pramit’s surprise predictions for 2010.
- Ian Cooke
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