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All forecasts are wrong


All forecasts are wrong image
Archbishop Peter Smith of Southwark has accused Chancellor George Osborne of producing “ludicrous” economic forecasts about Europe. Earlier the former Secretary of State, Iain Duncan-Smith, dismissed a recent barrage of unhelpful (to him) economic forecasts with the adage “all forecasts are wrong”.


Investors, like voters, want FACTS. Facts so that we can decide how to invest in the run-up to the European Referendum. But facts are an endangered species – especially facts upon which everyone agrees. The steady stream of forecasts supported by long lines of ‘experts’ are largely unverifiable and hotly-disputed.


We’re in Donald Rumsfeld’s hazy world of known-unknowns and unknown-unknowns. In other words we have no idea about what would be the differentiating result of leaving or staying and are left with impossible investment decisions. Should I increase my exposure to the Euro, or decrease it? Should I buy gilts in expectation of interest rate falls, or sell in case they start to rise? Will the stockmarket go up or go down?


The good news is that there is no need to be concerned. Whilst the referendum is almost here and the outcome could have huge and far-reaching consequences, you don’t have to make any financial decisions in such an information vacuum.


Flowers McEwan takes a global, big-picture, view of investing because we know that the market is very good at processing information that is relevant to future returns. Because of this view, we don’t attempt to second-guess the market. We manage well-diversified portfolios that do not rely on the outcome of individual events or decisions to bring about our expected long-term returns.
We have faced many uncertainties in the past—general elections, market crises, recessions, wars—and throughout all of them, the market has done its job of aggregating participants’ views about expected returns and priced assets accordingly.
What we mean is that there isn’t a wizard behind the curtain who is making clever decisions which you have to try and second-guess. No, we are using the vast, anonymous, combined wisdom of the market to prepare your portfolio for every outcome.


So, provided that you have cash for the short term and are investing with a long term perspective, you can give all your energies to watching the campaigns conjure up convincing arguments to win your vote. You can relax in the knowledge that long after the votes have been counted your portfolio will be delivering the results for which it has been designed – whatever the result.


David Flowers
Flowers McEwan Ltd

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