Stocks in 2014: The Only Prediction Guaranteed to Come True

Good news, Foolish investors: Kiplinger's believes that 2014 will offer up another great year of stock returns. According to the company's 2014 investing outlook:

"Another year of gains will be supported by stronger economic and corporate underpinnings, and, just as important, improving sentiment among investors. By most measures, stocks are fairly priced, if not bargains. Given expected earnings growth of nearly 10% in 2014, we think stock prices could rise that much and perhaps more." 

Hmmm, with statements like that, it's hard to argue against putting as much money in the stock market right now as you can.

Looking for specific stocks to invest in?

Kiplinger's believes that LED-lighting specialist Cree (NASDAQ: CREE  ) and insurance specialist Tower Group (NASDAQ: TWGP  ) are great buys right now. Kiplinger's says that Cree's energy-efficient light bulbs are only used by 3% of the U.S. population and that the government will help push sales higher, while it argues that investors have overreacted to Tower Group's questionable loss reserves and buying today's 17% dividend is a good deal.

Of course, 2015 might not be as rosy, but we'll get the notice in time to take our money out, right?

Not so fast
I'll get to the prediction guaranteed to come true in a second.  But first, it's important to acknowledge that we all -- myself included -- fall victim to using a new year as an excuse to make bold predictions. It's fine to use the year's end to check in with your investments -- it's an easy marker to use to remind you to do that.

But making predictions based on what will happen in the stock market between now and when we make a full revolution around the sun is a little bit silly.

It's also a practice in futility. Take a look at Kiplinger's performance since 2007 at predicting how the market would fare in the next year.

Source: Kiplinger's 

Taken as a whole, Kiplinger's predictions would have left me with returns of 70% since the beginning of 2007. But that's not the case at all. An investment in the S&P 500 (SNPINDEX: ^GSPC  ) in January 2007 would now be up just 26% -- less than half what was progressively predicted.

It's hard to blame Kiplinger's for putting out these types of predictions; they make for great headlines. The magazine actually provides ranges, too; I simply took the midpoint of such ranges. And since as far back as 1871, the annualized return of the S&P 500 is 8.9%. Kiplinger's took the conservative route, with predicted annualized returns of 7.9%

It really isn't fair to pick on Kiplinger's alone, either. A bevy of Wall Street banks do the same thing, as well as Money magazine, and Standard and Poor's. Oppenheimer  believes the S&P 500 will finish 2014 at...wait for it...a value of 2,014. Heck, we like doing it here at the Fool, too.

A better way to look at the situation
I, too, will likely be putting out articles about stocks in 2014. Again, checking in with certain investments on a yearly basis is a good idea -- and there's nothing wrong with doing that come December.

When it comes to making predictions, however, it's important to be very explicit about the context in which I'm doing it. I like to focus on specific stocks. When you hear me telling you that Company X is a great pick for 2014, I'm also saying I think it's a great investment through 2015, 2016, 2017, and 2018 as well.

I've learned that that's what successful investors do: They take the long view. And the long view is, at the very least, three years in length.

When it comes to making predictions on how the overall market will do in 2014, there's only one thing I -- or anyone else, for that matter  -- can say with any level of confidence: It will either go up, go down, or stay the same.  Anyone who claims to know more than that is just fooling themselves.

A great stock at this time...which happens to be at the precipice of 2014

Like I said, there's nothing wrong with telling others about an investment idea you like. Our chief investment officer at The Motley Fool has just hand-picked one such opportunity in our new report: "The Motley Fool's Top Stock for 2014." Of course, he thinks it'll be a good investment beyond 2014 as well.  To find out which stock it is and read our in-depth report, simply click here. It's free!


Read/Post Comments (3) | Recommend This Article (1)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On December 07, 2013, at 5:18 PM, kankemike wrote:

    AIG

  • Report this Comment On December 08, 2013, at 2:47 PM, Ubunn wrote:

    What's idiot will follow motley fool to buy twgp for 2014..a company got notice from Nasdaq without fling 3qtr result mighty delist in near 60 days..I used my home insurance by tower after a year later without claim any any damage or loss my insurance go up 75%..so I call tower no one answer my call? Seem to me the tower closed business..I let my broker call them same thing..so I transfer another insurance..this company is scam..can't believe motley fool will post this recommend..they should fired Brian stiffer who's post this article.

  • Report this Comment On January 07, 2014, at 12:41 PM, wodeqian wrote:

    Ubunn - he said Kiplingers recommends Tower, he's not recommending it. The article is simply saying the the rash of predictions each new year is mostly wrong. Not exactly a new idea to people who pay attention each year, but a far cry from joining in the fray.

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