According to a piece in today's New York Times, economists expect good but not great things for 2007. Merrill Lynch's Chief Investment Strategist Richard Bernstein projects a 12% rise in the S&P 500. Abby Cohen sees the S&P going up modestly, and UBS's David Bianco expects multiple expansion. Some economists worry about the Fed and others are concerned that investors are too bullish about GDP growth. But all in all, they are expecting it to be a good year.
The problem, according to investors like David Dreman, is that positive sentiment is often a contrarian indicator. In his book Contrarian Investment Strategies, he provides compelling data that show that even the best analysts and economists are often wrong -- and by a problematic amount.
So it may be wise to exercise caution in the face of bullishness. As Warren Buffet often says "The secret is to be fearful when others are greedy and greedy when others are fearful." I hope the analysts are right, but I wouldn't be making investment decisions based on their predictions.
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Reader Comments (Page 1 of 1)
1-02-2007 @ 2:16PM
Jerry Bluhm said...
I remember during the run up in technology stocks many of the experts were super bullish, saying things are different now and tech could continue to rise. Well, we know what happen, don't we. Who does the analysis work for? They are very much a part of Wall Street. They work for those brokage firms who want your money.