In my last post, I took a look back at the year that was 2010 and the major news and investment headlines that made it such an interesting year.  It was a l-o-n-g post.  In this post, I will take a look forward into 2011.  At our firm, we manage our clients’ (and our own) portfolios using a passive investment strategy.  By definition, that means that we don’t try to forecast the future of the economy, markets, or individual securities.  We use an academic approach to portfolio management that focuses on diversifying across many different asset classes and keeping investment costs as low as possible.

But the folks on Wall Street make their living by encouraging an active management style of investing.  And that means there is no shortage of “gurus” willing to offer their forecasts for the economy, the markets, or individual stocks and bonds.  In January of each year, they issue their predictions for the new year.  I have compiled some of those forecasts and will provide a short summary here.  But the real fun will be at the end of this year.  I am going to keep their forecasts and at the end of the year we’ll take a look back to see how they did. 

Let’s start with the Director of Investment Research from Fidelity Investments, Jurrien Timmer.  In his forecast, he calls for growth in the global economy and says the he is “generally bullish” on stocks and commodities for the year, but bearish on US Treasuries and the US dollar.  He is bearish on treasuries because he sees a risk of rising interest rates.  However, one of Fidelity’s Fixed Income portfolio managers, in his “2011 Outlook”, commented that he sees “low rates for the foreseeable future.”

Billionaire investor Kenneth Fisher, in his forecast “Why Everybody Loses in 2011”, thinks that the largest US companies will lead global stocks, but sees diminished returns after a bull market that has run for almost two years.  “I do not think the bull market is over, but I expect this year to be frustrating for almost everyone,” Fisher said. “This is a year where returns are likely to be disappointing to bulls and bears alike.”

Laszlo Birinyi, who was one of the first money managers to advise buying stocks before they bottomed in March of 2009 made a prediction that Investment News magazine called a “jaw dropper.”  Birinyi analyzes historical charts and patterns to make his forecasts and says that he expects that the current rally should last another 32 months!  He goes beyond 2011 and looks for the S&P500 index to hit 2854 on September 4^th, 2013.  (The specificity of some forecasts is almost funny)  As I write this article, the index is at 1280, so 2854 would represent a gain of over 120% in the next 2 ½ years!  His forecast for 2011 calls for the S&P500 ending the year at 1333, which is in line with the average of 1371 from 11 strategists surveyed by Bloomberg News.

Bob Doll, Chief Equity Strategist for BlackRock Investments predicts that 2011 will be the third straight year of double digit percentage returns for US stocks.  If correct, it would be the first time in more than a decade the US markets have enjoyed such a bull run.  Doll believes that GDP growth in the US will move to all time highs this year.  He also calls for the unemployment rate to fall to 9%.  He calls for a target of 1350+ on the S&P500 at the end of the year and feels that upside possibilities could push it substantially higher.  Doll makes 10 economic and market predictions for 2011 in his year-end report which also includes a list of his predictions from last year and commentary on whether he was right or wrong (he was correct on 7.5 out of 10). 

So, it looks like all four of our experts are calling for economic growth in the US…but they disagree on the level of growth.  It also looks like all four are calling for rising stock prices for the year…but once again their forecasts vary from “mildly positive returns” to “jaw dropping.”  All four think that stocks will outperform bonds and that US stocks will outperform international stocks. 

All of these forecasts should serve to remind you that Wall Street wants you to think that, with their help, you can position your portfolio to take advantage of opportunities and avoid the pitfalls.  They almost seem to turn investing into a sport.  In fact, I recently drove by a Raymond James office in my area and the sign out front let us know that their “2011 Best Pick List” was out.  It made me think of the sports gambling services that offer you the NFL “Pick of the Week/Month/Season.” 

Investing is not a game and it is not a sport.  If you want to gamble, go to Vegas or Atlantic City…at least there you get free drinks.  But for your “serious money”, use low-cost investment vehicles to develop a well-diversified portfolio that matches your need and tolerance for risk, and then tune out the noise of the forecasters.  But just for fun, we’ll check back at the end of this year to see how this year’s predictions turn out.