Can you predict sharemarket returns?

Can you predict share market returns?

Do you know when to stick it out or get out?

What ‘game plan’ should you adopt for investing in the sharemarket?

As an economist would say, “on one hand, …” and then immediately follow it up with a seemingly contradictory “but on the other hand, …”  Apologies to the economists!  Well in this case we can apply this “logic”?!

On one hand we say that it is relatively easy to predict sharemarket returns, but on the other hand it is very, very hard.  Huh?  What do you mean?

The difference is how you look at it.  It depends on your perspective.

If you try to predict sharemarket movements in the very short term i.e. days, weeks, months and even over 1 year  – good luck!  It is not just hard; it could be detrimental to your investment portfolio.

However, if you take a long term view and understand the history, it is a very different story.  We believe in the long term sharemarket returns are quite predictable.  You may ask, how long is the long term?  How long do I have to wait to get a good return?  The chart below will help answer this for you.

Chart: InvestAstute Pty Ltd

You can see each year’s return back to that auspicious year of 1987.  Individual year returns have varied from about + 40% to 40%.  That seems like a real “roller-coaster”.  However, we do not invest in the sharemarket for just one year.  We invest for the long term.  So what does the long term history tell us?

The 10 year return figure includes the Global Financial Crisis where returns in the 2008 year were      -40% and we had another bad year in 2011 of -11%.

Out of these historical returns, which is the best guide?  We cannot predict the future but we can use history to give us a guide.  Many factors affect stock prices in the short term, including the investor’s behavioural biases, news and events, volatility in global markets etc. A wise long-term investor would listen to the sound (the long-term scenario) rather than the noise (the short-term ups & downs)

If you take a short tern view the returns could be anything.  We believe that if you take a longer term view it is much easier to decide on what your realistic investment return expectations could be from the Australian sharemarket.

Keep in mind that past performance is not a reliable indicator of future performance.

Of course, there is a lot more to investing.  Why not be a better investor?

Nick Nedachin is the Managing Director at InvestAstute Pty Ltd and is contactable on 02 9929 5125 or

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