Even the brightest minds in the finance industry aren’t immune to their crystal balls fogging up occasionally. Here are seven occasions where the predictions of finance professionals have gone horribly wrong.
Predicting what will happen in the future makes for a great way to pass the time, especially when you’re idly chatting away with your friends. After all, who doesn’t enjoy a good flight of fancy? On a more serious note, investing requires you to predict how an asset would perform through the years, with only the information that’s made available to you right now.
Professional investors, venture capitalists, and hedge fund managers have built up entire careers based on predicting how companies and industries will perform. Often, the likes of Warren Buffett, Jack Bogle, and Carl Icahn get their bets right, thereby putting the ‘pro’ in professional.
However, even the finance industry’s most experienced folks aren’t omniscient. They’re prone to gaffes from time and time, especially when they succumb to cognitive biases and heuristics.
These seven predictions that missed the mark highlight that finance professionals are only human. Take a look at what their crystal ball (wrongly) told them, along with what really happened thereafter.
- Electricity will be a fad
- Cryptocurrencies will ‘come to a bad ending’
- India is the worst country to do business in
- Europe is in existential danger
- Tesla’s stock price (in 2013) is too high
- Selling off millions of Apple shares
- Donald Trump’s 2016 election will trigger a protracted recession
1. “Electricity will be a fad” - Junius Morgan (1860s)
A classic prediction that went horribly wrong from J.P. Morgan’s father, Junius Morgan. Yes, that J.P. Morgan. The American banker and financier even dissuaded his son from investing in Thomas Edison to kickstart an electricity company.
Needless to say, J.P. Morgan ignored his father’s advice and electric lights replaced kerosene lamps in the USA by the 1890s.
J.P. Morgan’s initial investment in Thomas Edison led to the formation of General Electric down the road. Today, the American multinational corporation is publicly listed on the NYSE and draws an average gross profit of over US$20 billion a year. It’s a constituent of the S&P 500 index and has eight subsidiaries doing business across an equal number of sectors.
As for electricity itself, it went from potential fad to daily essential, as anyone in the world would attest.
2. “In terms of cryptocurrencies, generally, I can say with almost certainty that they will come to a bad ending” - Warren Buffett (2018)
Given that this prediction is coming from the Oracle of Omaha himself, there’s a lot more nuance than the usual cryptocurrency doomsday forecasts.
Firstly, Warren Buffett did not put a timeline on when the cryptocurrency party would end and he had no clue what would trigger a collapse either.
Furthermore, he has gone on record to say that he does not understand cryptocurrencies. As proof of his statement, his company, Berkshire Hathaway, does not have any positions in cryptocurrency, long or short.
Although it’s still up in the air regarding what would happen to cryptocurrency down the road, Warren Buffett is currently being proven wrong. Despite how volatile cryptocurrency’s prices are, they’ve been rising rapidly ever since the third quarter of 2020.
With regards to utility, El Salvador has been accepting Bitcoin as legal tender since September 2021.
Likewise for the Swiss canton of Zug, where taxes can be paid in either Bitcoin or Ethereum. These two countries are just the tip of the iceberg, with companies and nations across the globe seriously considering the idea of accepting cryptocurrency as a form of payment.
3. “India is the worst country to do business in” - Jim Rogers (2013)
This is a bold prediction from the American investor and Chairman of Beeland Interests. Jim Rogers might adore India for its food and culture, but he has slammed the South Asian nation for not keeping debt in check and having poor governance overall.
He was frustrated with India for not fulfilling its potential, given how many opportunities he saw in the nation.
However, from 2013 to 2020, India’s GDP has risen from US$1.85 trillion to US$2.62 trillion. That translates to an annual growth rate of approximately 5%. It’s among the top economies in the world, especially after reforms in 1991 accelerated its growth.
Speaking about growth, it surpassed China from 2013 to 2018, largely driven by consumer demand internally.
On the other hand, Jim Rogers’s statements in 2013 weren’t completely off the mark. According to the CIA, India still has a restrictive business climate, extensive poverty, and widespread corruption.
Although its economy is still very much liberal, these issues will indeed cause the nation to not meet expectations when it comes to economic growth
4. "It is no longer a figure of speech to say that Europe is in existential danger; it is the harsh reality” - George Soros (2018)
To be precise, he was referring to the European Union. And the American billionaire investor definitely didn’t see COVID-19 coming the world’s way, so count him as half correct.
Every country on Earth was rocked by COVID-19’s arrival in 2020 and there are still entire sectors that have not recovered in 2021.
Who knows how 2022 will unfold, then?
With regards to the European Union, a report by professional services firm Deloitte in August 2021 suggests that the region will be just fine. “The overall outlook for the European economy is therefore positive, barring a drop of bitterness”, the report summed up.
That drop of bitterness would be the manufacturing industry, with semiconductors in particular.
However, semiconductors are in short supply across the globe. It isn’t a problem that only European Union members are facing, but expect bottlenecks to ease up as countries learn to live with the novel coronavirus and open up their borders.
Finally, the United Kingdom leaving the European Union actually strengthened people’s opinion of the bloc, with eurosceptic political parties in the region not gaining much traction.
5. "The stock price that we have is more than we have any right to deserve” - Elon Musk (2013)
Tesla CEO Elon Musk isn’t a finance professional, but he’s been raking in serious amounts of cash seeing how wrong this prediction still is today. When he made that statement in October 2013, the electric vehicle company was trading at approximately US$172 per share.
Today, its share prices hover between a whopping US$710 and US$760.
This feat is made more impressive by the fact that Tesla performed a five-for-one stock split in mid-August 2020. Today, the Nasdaq-listed company has expanded all over the world and is also a S&P 500 and Nasdaq-100 constituent.
It has a rock-solid balance sheet too, almost doubling its assets from 2017 to 2020 while ensuring that its liabilities aren’t ballooning.
With that being said, Elon Musk has a reputation for being outspoken. Not only have his tweets and interviews affected Tesla’s stock prices, they have caused cryptocurrencies to move swiftly too.
Who can forget what happened to Bitcoin’s prices after he declared that Tesla would accept it as a form of payment? Likewise when he decided that the company would no longer do so.
6. “We no longer have a position in Apple” - Carl Icahn (2016)
This isn’t so much a prediction as an action taken. American businessman Carl Icahn was known to be a huge supporter of Apple, snapping up its shares by the millions periodically. He’s on excellent terms with the tech giant’s CEO, Tim Cook, too.
On a Wall Street Week episode in May 2015, he said, “You’re not going to find a better guy to run Apple than Tim Cook.”
Less than a year later, he sold his entire stake in Apple and made a US$2 billion profit. He cited China’s attitude towards Apple as a reason for making this surprising move, but did not rule out buying the company’s shares again once things ‘basically steadied’.
No one would blame him if he secretly bought Apple’s shares again in the years since, because things more than steadied.
In September 2021, Apple’s shares traded between US$140 and US$150. Like Tesla, Apple performed a stock split in August 2020, which makes this an impressive feat too. To put things into perspective, Apple’s share prices were five times lower in 2016.
As for China, it’s more than happy to let Apple operate in the country. The company keeps things competitive and prevents any native smartphone manufacturer from growing too large.
7. "If Donald Trump is elected, I would expect a protracted recession to begin within 18 months” - Larry Summers (2016)
Much to the chagrin of the American economist and billions and billions of people around the world, this didn’t turn out to be true. The S&P 500 index grew from US$1,812.29 in January 2016 to US$3,870.90 five years later.
Ditto for the Dow Jones Industrial Average, rising from US$15,450.56 in January 2016 to US$31,272.22 in January 2021.
On the ground, average hourly earnings of all employees rose from US$25.36 in January 2016 to US$29.92 in January 2021. Unemployment rates were dipping as well, until COVID-19 came along at least.
So no, Donald Trump’s election as President of the USA did not cause a protracted recession to occur within 18 months.
Unfortunately for him, and millions and millions of Americans, his poor handling of the COVID-19 crisis partially contributed to a recession. It might not have been a protracted recession, but fears regarding inflation and a shortage of employees linger.
On the bright side, Larry Summers would’ve been happy that Donald Trump got impeached not once, but twice.
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