I have written before about how dangerous it can be to base your investment decisions on what you believe is the direction of the markets.  And I’ve talked about how even the best and the brightest minds in the investment world can’t seem to agree on what that direction will be.  At the risk of repeating myself, I couldn’t let my observations of the last week go by without an updated comment. 

In the last three days, four very well-known investment gurus have made their predictions on what’s coming for the US equity markets.  If you are trying to decide how to position your portfolio for the upcoming year, these are some names you might want to pay attention to.  But then again, you might not.

On Monday of this week, Bloomberg News released a story with the headline “Bill Miller sees coming spike in stock prices.”  Miller, the Chief Investment Officer of Legg Mason Capital Management, won fame when the mutual fund he manages, the Legg Mason Value Trust, beat the S&P 500 for a record 15 straight years through 2005.  He’s a very smart and experienced money manager.  He said that US stocks may rise 15 percent in the next 12 months as the Federal Reserve continues their efforts to inflate asset prices and boost the economy.  I don’t know anybody who wouldn’t be happy with a 15 percent gain in their portfolio over the next 12 months.

But hold on.  On that very same day, the very same news service, Bloomberg News, released a story with the headline “Shilling: ‘Significant’ stock selloff dead ahead.”  Gary Shilling runs a company that forecasts and analyzes economic and financial developments.  He was one of the few analysts who predicted the US housing collapse.  He is another very smart and experienced money manager.  He says that the stock market is overvalued and he foresees a “significant” selloff within a year as the Federal Reserve fails to stimulate economic growth.

So, which one do you believe?  Are you willing to bet your portfolio on it?  If it helps, there were a couple of other predictions made this week.  Jeremy Siegel, Professor of Finance at the Wharton School of the University of Pennsylvania, and a senior advisor to the Wisdom Tree family of mutual funds, sides with Bill Miller.  He is yet another very smart and experienced money manager.  In a story released on Tuesday, he said that he sees the market growing 10-20% in 2011, and even sees a nice gain through the end of 2010. 

And finally, last but not least, on Wednesday we heard from Jim O’Neill, Chairman of Goldman Sachs Asset Management, and another very smart and experienced money manager.  He sides with Miller and Siegel and predicts that the S&P 500 may rise as much as 20 percent in the next 12 months as the Federal Reserve will be relentless in stimulating our economy.

With 3 out of 4 gurus predicting nice gains in the market next year, should we go “all-in?”  Are you willing to take that chance?  These stories are just the most recent examples of why a passive strategy to managing your money is probably the best approach for most of us.  If the smartest investment minds in the world can disagree by so much, how are the rest of us supposed to predict what will happen?

A passive strategy lets you tune-out the media “noise” surrounding the markets.  You develop an asset allocation mix that is appropriate for your situation, and only make adjustments when the movement in the markets alters that mix.  It’s a lower risk and less expensive approach to managing your portfolio. 

But if you insist on actively managing your portfolio and following the words of wisdom available from the “experts,” the predictions this week will have you feeling fairly confident.  But don’t forget…there’s always next week.