Stop Trying To Predict the Market
Peter McGahan
Monday 15th June, 2026.
I HAVE never seen a crystal ball in any of my investment board meetings but I have been asked to use one many times in social catchups.
Market predictions are comforting because they give chaos a suit and tie. Inflation will do this. Rates will do that. It all sounds clever, particularly when delivered by someone in a studio with a serious face and a chart behind them, and a wee bit of dramatic music.
The problem is that the record is dreadful.
Take the Bank of England. In August 2021, its Monetary Policy Report projected CPI inflation at 3.3 per cent for the third quarter of 2022 and 2.1 per cent for the third quarter of 2023. It also described above-target inflation as temporary, expected to fall back close to the two per cent target. By November 2022, the Office for National Statistics reported CPI inflation at 10.7 per cent. That is not a small forecasting wobble. That is turning up for a gentle walk and finding Everest in front of you.
This is not a cheap shot at the Bank. Forecasting was brutally hard after Covid, energy shocks and war. But if the best-resourced economic forecasting institution in the country can miss by that much, what edge does the average investor think they have after watching a three-minute interview with a ‘journalist’ who isn’t a longstanding economist of repute about interest rates?
The Bank understood the seriousness of the problem. It commissioned Ben Bernanke, former chair of the US Federal Reserve, to review its forecasting. His 2024 review said the Bank’s fan charts had “weak conceptual foundations”, conveyed little useful information beyond clearer alternatives, and should be eliminated. The Bank said the review made 12 recommendations and committed to action on all of them.
The Office for Budget Responsibility (OBR) has had its own struggles. Its forecast evaluation work has acknowledged that recent forecasts significantly underestimated inflation, while Oxford researchers noted that OBR forecasts have tended to overestimate real GDP (gross domestic product – the economy) growth and productivity, and underestimate inflation volatility.
An IMF working paper, covering 63 countries from 1992 to 2014, found that forecasters missed the magnitude of recessions by a wide margin until the year was almost over - they often spotted the tornado because it lifted the roof off.
Philip Tetlock’s famous study tracked 284 experts over 20 years, collecting 82,361 forecasts. The experts barely outperformed informed non-experts, and simple models often did just as well. The more visible commentator, with the neat story and the emphatic conclusion, is often the one least worth following. Certainty sells. Accuracy does not.
So, what should investors do instead? Not hide under the bed with a deposit account and a torch. The answer is to separate ‘signal’ from ‘noise’.
Noise is the next inflation print, the next Monetary Policy Committee whisper, the strategist’s year-end target, the newspaper headline which makes acting feel urgent. Signal is different. Fund charges; asset allocation; whether your pension or ISA is being funded properly; a lead manager leaving a fund is signal; portfolio drifting from 60 per cent equities to 80 per cent equities without anyone noticing are all signals. The rest is often financial theatre.
For fund investors, this is where the discipline becomes practical. Review the fund’s job in the portfolio. Check the cost. Check whether the manager and mandate are still the same. Rebalance when the portfolio has drifted materially. Keep contributions going if they still suit your plan. Do not switch funds because a manager had one bad year or because somebody has predicted a recession with the haunted confidence of a man who predicted six of the last two.
The cost of trying to jump in and out is not theoretical. Fidelity’s UK data, using Refinitiv Datastream, showed that from February 28, 2011 to February 27, 2026, the FTSE All-Share returned 8.11 per cent a year if you stayed fully invested. Miss the best 10 days and that fell to 5.07 per cent. Miss 20 and it was 2.97 per cent. Miss 40 and the return was minus 0.64 per cent a year. Those best days are not advertised in advance. They often arrive when the headlines are still dreadful.
Stop trying to predict the market. Build a portfolio which does not require prediction to survive.
I will be creating a guide to investing, so, if you would like a complimentary copy, please email info@wwfp.net. If you have a financial enquiry, please call 01872 222422.
Peter McGahan is the Chief Executive Officer of Independent Financial Adviser firm, Worldwide Financial Planning. Worldwide Financial Planning is authorised and regulated by the Financial Conduct Authority.
