Sunday, January 1, 2012

Shortsightedness and bipolar disorder?

I've been reading today about the analysts expectations for the performance of the stock market in 2012. Surprised by this year's market turmoil, they expect volatility to remain heightened. They expect either side-bound market or further declines, before later increases. The Q1 should give the definitive answer about the direction of the market in the rest of the year. In total, they are much more worried and divided than last year. And - as I wrote earlier - they are not alone.

Let's compare what the analysts were expecting at the beginning of 2011. The consensus on December 24th, 2011, when WIG20 was at 2768.66, was for the market to raise by 10-15%, most probably after expecting correction to 2500 in 2011Q1, possibly to 3300-3500.

In reality, the WIG20 decreased by 22.15% (from the open of 2754.67 on January 3rd, 2011 to the close of 2144.48 on December 30th, 2011). In the meantime, it reached the peak of 2942.39 (i.e. +6.81% from the beginning of the year (BYD) and +6.27% from December 23rd, 2010) on April 8th to fall to 2018.99 (i.e. -26.70% from the BYD) on September 23rd, 2011.

Since it seems, analysts are usually dead wrong, the best strategy would be to take to opposite view to their current predictions.

Hence, we should either expect the volatility to come down and market to go up (scenario 1) or the market to go up at the beginning of the year, before correcting later (scenario 2). 

I both cases, the market should finish the year much higher than it's current level:

Chart: Contrarian to analysts' predictions for WIG20 for 2012

Update 2012-01-04:

Analysts' predictions for S&P500 in 2012:
  • Morgan Stanley - 1167
  • HSBC - 1190
  • Goldman Sachs - 1250
  • Oppenheimer - 1400
  • JP Morgan - 1430
  • Deutsche Bank - 1500
  • average (Birinyi Associates) - 1334
  • mean: 1363
  • range: 1167 - 1500

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