A closer look at the annual tradition of broker/analyst predictions for the PSE
As market veterans will know, December and January are traditionally when brokers and analysts emerge from their 6-screen trading dens to speak with someone in the media and make bold predictions about what the PSE will do over the coming year. In years past, this exercise was known as the “plus 10”, because it seemed like everyone was just taking whatever happened in the previous year, and adding 10% to the total.
“Thanks” to COVID, I’ve heard many say that the “plus 10” is dead (for now), but that the genetic, instinctual urge for brokers and analysts to make a prediction -- any prediction -- is still powerful enough to draw these creatures out of their dens to make predictions despite the massive swirling soup of variables that lay before us. But is the Plus 10 actually dead?
Sun Life predicted 7,900 by the end of 2022 (+12% from Monday’s close), AIA Asset Management predicted 7,800 (+11%), Trading Edge Consultancy predicted 9,000 by mid-2022 (+28%), and COL Financial predicted 7,800 to 8,000 by end of 2022 (+11% to +14%).
Aside from Trading Edge Consultancy’s superbull take, everything else seems to be playing in the Plus 10 sandbox, give or take a few points.
Now, given that, how reliable are these estimates? Well, let’s take a look at what people were saying at the end of 2020 about what our exchange would look like today. Sun Life expected the PSE to end 2021 at 8,000 (off by 11%). ATR Asset Management expected 8,300 by the end of 2021 (14% miss). BDO expected 8,000 (11% miss). Macquarie said 7,700 (8% miss).
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The point of this article isn’t to laugh at predictions that didn’t come to pass.
The point is to underline the uncertainty of the future.
Nobody has any idea of what will actually happen, but every single person has at least a light framework of inputs (inflation, COVID status, economic activity, weather, election outcome, etc) and a faint glimmer of the future configuration of the economy that might result from their opinion of where all of those sliders will be set for this year.
The predictions are based on a snapshot in time of those sliders (like in a game’s Gameplay Settings menu), based on the information available at the time, and the analyst’s research and opinions on how specific trends may break for certain companies, sectors, or the economy as a whole.
Short-term traders (day traders, swing traders) probably don’t care at all about this, but understanding the context for these predictions can be very useful to long-term investors. Take the time to read and listen to these predictions.
Find analysts and investment houses that research and communicate the inputs that you consider to be crucial to your investment thesis.
Then, consider their prediction to be the 2022 baseline based on the January 1st information. As things change, apply those changes to the analyst’s model (as best as you can understand it), and see for yourself if the predictions hold true.
As a long-term investor, I’m less concerned that the so-and-so analyst missed her prediction by 15% because “haha she didn’t predict Omicron”, and more tuned in to whether or not her model of how things will proceed in the year was accurate.
Maybe the inputs were off. Maybe she didn’t predict some random event.
But the crucial bit is this: was the model effective for your investing style? It can be golden to find alignments like this.
For some investing styles, and most investing theses, it might be very difficult to find a mainstream analyst that speaks about models that will be applicable, but there’s something to be learned from almost any model you get the opportunity to consume. Keep an open mind, and be open to new ideas and to new ranges of input.
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Merkado Barkada's opinions are provided for informational purposes only, and should not be considered a recommendation to buy or sell any particular stock. These daily articles are not updated with new information, so each investor must do his or her own due diligence before trading, as the facts and figures in each particular article may have changed.
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