My Predictions for the Market this Year

Whenever I am talking with prospective clients most of them want a prediction of what will happen in the markets this year. My standard line used to be that the markets will go up and the markets will go down but that the long-term trend was always up. This year I have a more accurate response and I can tell you with a great deal of certainty the following:

Since 1946 through 2010, I can tell you that declines of 10% happen about once a year. You can bet on it.

I can also tell you that you should expect an average intra-year decline of 14.1%.  This means that there is a 50/50 chance that the markets will go down MORE THAN 14.1%.

Furthermore, I can tell you that there is a 1 in 3 chance that the markets will retreat 15% or more this year.

And lastly, I can tell you that there is a 1 in 5 chance that the markets will experience a drop of 20% or more this year.

But also know this. During those 65 years the S&P 500 index rose in 46 of the 65 periods, or 71% of the time.  Over this entire period the index went from 18 to 1257! The S&P 500 index return with dividends reinvested averaged 10.55% per year.

But you wouldn’t know that watching the news. They’ll only tell you the first half of the story.

So what can you take away from this?

Don’t be surprised when the markets drop.  Surprise is the Mother of all Panic. When you are surprised, you panic. And when you panic, you sell at or near the bottom.

Keep these facts in your back pocket.  You’ll need them later this year.

To Your Peace of Mind,

John Choi

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