2010 Predictions from Wall Street and Main Street: Who's Smarter?

by Stacy Johnson on 10 January 2010 3 comments
Photo: New Years Eve

It's that time of year again: everybody who's anybody sits in front of a camera and gives predictions on the year ahead. But just how smart are these "experts"? We do more than give them air time; we go back and see just how smart they are by comparing previous-year predictions with what actually happened.

Every December for the last five years Money Talks News has hooked up with David Wyss, the chief economist for giant research firm Standard & Poors. We sit him down in a studio and ask him what changes he expects for the coming year in three critical consumer categories: stocks, housing and oil.

But then we do something else: we go out, hit the streets and ask the same questions of the first three people we can find willing to talk to us on camera. The idea behind this little experiment is to see if the high-priced experts on Wall Street are really any smarter than a random stranger on the sidewalk. You might be surprised at the results. Watch the following 90-second story and see how Main Street compared to Wall Street with predictions for 2009 and who got it right. Then we’ll get to the predictions for 2010.

How Smart Were They? Predictions from 2009

 

The first (maybe not so) surprising thing we learned from that story is that when it came to predicting what would happen in 2009, random strangers on the sidewalk gave pretty much identical answers as one of the most experienced economists on Wall Street. And as far as accuracy? Both David Wyss and our people on the street did a decent job of predicting how the year would go for stocks, housing and oil prices, but none hit the nail on the head.

Consider this part of David Wyss’s comment on stocks:

We're close to a bottom now, and I think we've probably hit the worse point already.

When he said that in mid-December of 2008, the Dow Jones Industrial Average was around 8,700, and that’s pretty much where it finished the year. But was it the worse point? Hardly. Several months after he made this prediction the Dow bottomed at 6,440 so it fell an additional 26%. From there it bounced back, however, to end the year at 10,428 for a calendar-year gain of about 19%. That makes his prediction of 10-15% gains look pretty good. But had he said not to invest at all until the market bottom in March, we could be up 62%.

ARTICLE CONTINUES BELOW

Of course, nobody can accurately predict a market bottom no matter how smart they are. But it’s interesting to note that Wall Street predictions were no more clairvoyant than yours when it came to predicting the direction of stocks last year. Ditto for our other categories. Wyss’s predictions weren’t far off, but then neither were sidewalk amateurs. Oil was around $75/barrel when I got my predictions on tape in mid-December. It ended the year closer to $80, which makes Wall Street’s and Main Street’s prediction of $90 not that far off the mark. Ditto with housing: both professional and amateur guesses of a 10% decline were pretty close to the 8% drop we actually experienced. But 2009 is now behind us: what’s in store for this year? Here’s the story we shot in mid-December 2009 with predictions for 2010.

How Smart Are They? Predictions for 2010

 

This year Wall Street and Main Street gave different answers. Our Wall Street economist was much more optimistic. Wyss said stocks would rise 12%, and our woman on the street said down 10%. On oil, both Wall Street and Main Street are looking for an increase: Wall Street says $80 per barrel (about where it is right now) and Main Street says between $85 and $90. On housing, our expert was kind of vague, saying only that we might have a bit more decline ahead, but for the year we’d be up. Our more pessimistic man on the street said down another 10%.

We’ll be continuing our tradition by comparing predictions to reality at this time next year — stay tuned. But I’ll leave you with a tidbit of knowledge gained from 10 years as a stock broker, 20 as a money reporter, and 30 as an investor: The only thing accurately predictable is that our world is unpredictable. That’s why I keep some money in the market and some on the sidelines at all times. I own some oil stocks because they’re likely to go up if oil does, offsetting some of the pain of higher gas prices. I regard my home as simply the place where I live, not an investment. And I try to live like I’m going to die tomorrow, but invest like I’m going to live forever. I also keep my debt to a minimum. That's why I just published Life or Debt 2010. Check it out!

 

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Guest's picture

Although I'd never be so bold as to base my investment strategy on it, I'd take the advice of the "man on the street" any day of the week over the "experts" on Wall Street.

Guest's picture
the oracle

wall street is set for the mother of all resestion 2015

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Tony Smit

A home is an investment in sanity, not vanity. By that I mean it is a safe place to get away from the hassles of the world and to sleep soundly. Do I rent or do I buy ? A mortgage is where one "rents" money to "buy" a house, some people have a need to "control" the place they live, others have less need.