Our 2023 Predictions | The Acquirer's Multiple®

In their latest episode of the VALUE: After Hours Podcast, Brewster, Taylor, and Carlisle discuss Our 2023 Predictions. Here’s an excerpt from the episode:

Jake: Okay. So, with that out of the way, happy birthday, Charlie. This is inspired by Jason Zweig, had a recent writeup that he called his Hindsight Bias Buster Quiz. Every year, Jason, he’ll run this into your quiz. Basically, the intention behind it is to record your estimates of some key asset classes and just see how your predictions pan out. Jason points out how regularly we fool ourselves. Often, what we know alters our perception of what we think we knew a year ago, right? And that’s what psychologists call hindsight bias.

So, there’s a lot of things– I’m going to give you a quote about what Jason said in this, because I think it sums it up nicely. “The meaning of the present is almost always hidden until it becomes the past, at which point you can’t reconstruct your earlier state of ignorance. That makes it all too easy to fool yourself into thinking that you knew what would happen all along, which in turn can delude you into thinking now that you know what will happen next. So, we’re basically just meandering through life with one hindsight bias crashing into another. But what’s fun about this is, we’ll record our predictions and then that way, we’ll circle back from them and we’ll see how dumb were.

Actually, I had my guys at Journalytic create a checklist for Jason’s Hindsight Bias, just to make it easy to record all of your answers. And then, you can add a one-year-out reminder to that journal entry, and then, it’ll serve it up to you in a year and you can check on your own hindsight bias, if you want to get in there and do that. And if you happen to do that and you want to screencap it and post it publicly, that could be fun. Actually, in the article, Jason said to send him your entries at intelligentinvestor@wsj.com. So, he asked people to send them his entries. If you wanted to, I mean you don’t have to, but you can CC hello@journalytic.com, just for fun, because we like to keep track of that.

Tobias: Tag us on Twitter too, because there’s little tools on Twitter that will let us look back in a year as well.

Jake: Yeah. There are a number of questions here, and we’ll take them one at a time and I’ll give you of reference points for each one. So, the first one is, what will the closing value of the Dow Jones Industrial Average be in one year? And currently, it’s at $33,500, let’s call it.

Tobias: This is a little more specific than I was planning. Let me think.

Jake: Uh-oh. [laughs]

Tobias: Can I look at where it is now?

Jake: It’s at $33,500.

Tobias: $33,500.

Bill: He just told you, bro.

Jake: [laughs]

Tobias: Mate, I got goldfish memory.

Jake: Oh, boy.

Tobias: $33,00 times 1.09- [crosstalk]

Bill: 0.67.

Jake: [laughs]

Tobias: – equals? I’m going to get $36,000.

Jake: All right, Toby’s going $36,000. Bill?

Bill: Oh, I don’t know. I don’t know.

Tobias: Actually, that was dumb. You want the extremes, you want the extremes. You want to go a double or a half.

Bill: Oh, I think– Yeah.

Jake: Well, pick what you really think it’s going to be.

Bill: I don’t know. The thing is– [crosstalk]

Tobias: Stick them in the comments so we can come back to this later and see who is right.

Bill: I’m going down. What’s down 7%?

Jake: All right, I’ll just write that and we’ll calculate it later. All right.

Tobias: I typed in my– I typed in $33,000– [crosstalk]

Bill: It’s like, let’s go– I don’t know, go like 312. All right. What is it? $33,000? So, say $31,200.

Jake: All right. Final answer?

Tobias: Brian asks, “Price is Right rules?”

Bill: Yeah, I’m late on this. It’s already– [crosstalk]

Tobias: What is [crosstalk] calculator?

Jake: Yeah. Price is Right rules. This is closest. Not Price is Right.

Bill: One dollar.

Jake: What will be the total return of the S&P 500 over the next year?

Tobias: Just before you move on, somebody said, “The Dow Jones is a garbage index,” and I completely agree. It’s so weird. Like 30 companies, 33 companies– [crosstalk]

Bill: Stop being a hater. Price [crosstalk] is the only way to do things.

Tobias: Just wait.

Bill: Everyone knows this.

Jake: [laughs]

It’s So Hard To Deviate From The Index

Tobias: I completely agree. That’s such a silly way of constructing the index, but it does show how hard it is not just to outperform, but to deviate from an index. If you said at the start of your thinking, “I’m not going to do what the index does,” have a look at what the S&P 500 looks like compared to the Dow. They’re virtually indistinguishable in terms of returns over the very long term.

One of the things I wrote about in Concentrated Investing was how hard it was to deviate. Just randomly selecting 30 stocks gets you N30, which is about statistically significant number. Price weighting, which is crazy, still tracks the S&P 500. It doesn’t make any sense. To actually deviate your performance, you have to do something radically different in your portfolio even trying to underperform. Sorry, dude. [crosstalk]

Jake: Yeah. That’s a good observation. All right. S&P 500 over the next year?

Tobias: Well, logical consistency, I have to go like 9% on– [crosstalk]

Jake: Plus 9%?

Tobias: Plus 9%, which is my calculation for Dow.

Jake: All right. Bill, what do you got?

Bill: I got to go down 7%.

Jake: All right.

Tobias: Can we do inter-year marks too, because I think there’s going to be a big crash to–?

Jake: No, too much work.

[laughter]

Tobias: We can discuss it. We can return.

Jake: Yeah. All right. What will be the yield on the 10-year US Treasury note in one year? Currently at 3.6. Call it.

Tobias: That is a tough one.

Jake: Yeah. That could go a lot of different directions, huh?

Bill: Hang on, I got it. Hang on.

Tobias: To what extent does the 10-year reflect the will of the people and to what extent does it reflect the Fed?

Bill: Everything is Fed manipulated.

Jake: [laughs]

Bill: Always and always. We’ll go 2.5.

Jake: All right.

Tobias: Well, I’ll go 6%.

Jake: Coming down. All right. Going the other direction. That’s what I like.

Bill: You like how I think that the stock market is going to go down and the 10-year’s going to go down? Yeah, that’s a great prediction.

Jake: Yeah. It’s just a stat.

Tobias: Look at mine. I’ve got 9% of the index and then 6% on the– That makes no sense either.

Bill: Yeah. You and I, we need to get to different camps.

Tobias: Not thinking. Then, we’ve had each way bets too. So, there’s something.

Jake: All right.

Tobias: We pitched ourselves.

Bill: Yes, that’s right. The key is to throw enough stuff out there that we can say correct, no matter what.

Tobias: Hedge. Just keep hedging.

Jake: That’s right.

Tobias: 40% certainty.

Bill: We’re in the media game, folks. That’s the game.

Jake: What will be the annual rate of inflation in one year? Currently 7.1 for the CPI.

Bill: 3.2.

Tobias: Negative.

Bill: I like that.

Tobias: Whatever in your mark.

Bill: It’s tough to get a 6 handle on the 10-year with negative inflation, but I like it.

Jake: [laughs] You are really– All right. Give me a number though to put in here. It’s -1 or something?

Tobias: Yeah. Just give me below zero. -0.1 and then I get everything below that.

Jake: [crosstalk] below that. Okay. [laughs] I’m not sure I agree with that, but that’s fine.

Tobias: It’s [crosstalk]

Jake: All right. What will be the price of bitcoin in one year? It’s currently $17,350.

Tobias: See, that’s a hard one, [laughs] as opposed to the other ones.

Jake: Yeah, the other ones are easy. This is hard.

Tobias: Bitcoin. Yeah, it slides around a lot, doesn’t it? You could say one-tenth or ten times, and that would be the range. So, I’ll go one-tenth, $1,700. Go $2,000. $2,000.

Jake: Wow, that’s a big haircut. All right. What do you think, Bill?

Bill: I don’t know. $25,000?

Jake: Whoa.

Bill: Yeah, totally plucked out of random numbers. I assign 0% confidence interval for that, by the way.

Jake: It has been surprising to me that with this all the SPF, all the FTX, all that stuff like unwinding crazy stuff, this seems to have been one of the more stable periods for bitcoin. It’s been in that $15,000, $16,000, $17,000 range for longer than I remember or maybe I’ve just been expecting it to do something.

Is The Bitcoin Price Stabilizing?

Tobias: One thing that’s funny is when you go and look at it, it trades sideways and then it takes a step down, and then it trades sideways and takes a step down. It’s almost– I don’t know, maybe it’s trading around whole numbers or something like that. I didn’t look that closely. I just eyeballed it and thought it’s a funny. It has a very tight trading range and then it breaks, and then a very tight trading range, and then it breaks, which is different behavior to what it’s had before. Maybe it is stabilizing. Maybe that indicates that it’s more useful as a unit of exchange rather than just– [crosstalk]

Jake: Store of currency or store of value?

Tobias: Maybe it’s less of a trading side and more like a currency. Yeah– [crosstalk]

Jake: What will be the price of gold in one year?

[crosstalk]

Bill: [crosstalk] double that. Big double on bitcoin, by the way.

Jake: It’s currently $1,877.

Bill: Target price should be zero.

Jake: [laughs]

Bill: Gold?

Jake: Yeah.

Bill: What have I thought?

Jake: 1,877 right now, dollars.

Tobias: Yeah. I’ll say $3,750.

Jake: Whoa.

Tobias: Yeah, Jake, you should be giving your predictions too.

Bill: Yeah, Jake.

Jake: Okay. I’ll run mine at the end, just to– [crosstalk]

Tobias: You are going to go through– [crosstalk]

Jake: Yeah, just to crystallize.

Bill: Yeah, but you thought of this. I have not.

Jake: In fairness, I sent you a link to like– [crosstalk]

Bill: Oh. Yeah, I know.

Jake: Yeah, here’s all the questions, we’re going to talk– [laughs]

Bill: Yeah, but I have not prepared in the past and I’m not about to start.

Jake: Yeah, you’re the Cal Ripken of– [laughs]

Bill: Let’s go. $1,300.

Tobias: Is oil coming up here? Because we’ve got some oil predictions coming in too.

Jake: What will the price of crude oil be in one year?

Tobias: I haven’t really followed that closely. You’re aware of it at extremes, right? So, I remember when it went through zero. I reckon it’s $200.

Jake: It’s currently at $75, call it. So, just FYI.

Bill: Yeah, but that’s an SPR-adjusted $75.

Jake: [laughs] Yeah.

Tobias: $200. Yeah, that’s my prediction. $200.

Jake: $200? Jesus, what a world are we living in, Toby?

Tobias: If you don’t know, you got to go to the extreme, right?

Jake: Sure.

Bill: I’m going to go with– [crosstalk]

Jake: Yeah. What are you saying, $75?

Bill: Yeah.

Jake: Yeah. When you don’t know, bet against the base rate. That’s what I was– [laughs]

Bill: I think between $60 and $80 is my real answer.

Jake: All right. What will be the best performing major financial asset over the next year?

Bill: US small caps.

Jake: Okay.

The Best Way To Predict A Commodity Price

Tobias: Oh, please. I forgot to mention. When you’re predicting commodities, the best prediction for a commodity priced 12 months ahead is the current price. The reason is that it minimizes your error because you got no idea. So, that’s generally the best prediction unless you get it to an extreme– [crosstalk]

Bill: This would be what I would say for everything, by the way.

Jake: Yeah.

Tobias: Well, unless you get it to an extreme and then you get the mean reversion. So, if I was being statistically smart and a betting man, I’d betting the current prices for everything for the year ahead. I’m not going to say those things, because that’s boring, but it would be nice to track that as that’s the market. Do you what I mean? That’s the base.

Jake: Yeah, base rate is whatever it is today would be your– if you were a no-nothing.

Tobias: Yeah. It’s the smartest thing to do if you’re statistically inclined.

Jake: Too boring for the media though. So, let’s get a little crazy. [crosstalk] What do you think?

Tobias: I’m going to say equities and particularly emerging markets value. Emerging markets, small value.

Jake: Oh, all right.

Tobias: I think the thing that has been most beaten up over the last decade is probably the thing that turns around hardest over the next decade and probably start in this year.

Bill: Until everyone dies and there’s no terminal value in those.

Jake: Whoa.

Bill: I would take junk debt too.

Tobias: Yeah, that’s probably in there.

Jake: All right, I’ll add that as a– All right, I’m going to lock these in now. You’re happy with what it is and then I’ll reveal what mine are?

Tobias: Yeah.

Bill: No. I’m not happy with these. These are garbage.

Jake: [laughs] All right. Here are my answers just for fun. Dow Jones, $29,500. Total return S&P 500 minus 15%. US 10-year, 4.5. Rate of inflation, 6%. Bitcoin, $14,000. Price of gold, $22,000. Best performing asset class, energy.

Tobias: Interesting. Sober. Sober.

Bill: We’ll see.

Jake: All right.

Bill: US small cap, get ready.

Jake: [laughs] Rocket ship.

Bill: I’m serious. Small is beaten up in a big way.

Tobias: Small does look like a coiled spring to me. They’re a lot better than they’re being valued at the moment.

Jake: Does that rhyme with 2000?

Bill: I think that they’re trading at global financial crisis levels, which last I checked, this isn’t that.

Jake: I meant more of the still generally expensive broader market, but very cheap like small versus large, which was one of the characteristics of the 1999 to 2002 timeframe.

Bill: Yeah, I could see that. I could see large not doing so hot. I could see the index not going too many places and small doing pretty darn well.

Tobias: I want to do another little prediction. I’m going to double down on my– I still think that like just at the end of last year, we traded down 20% year on year, I got two crack jokes out before it traded back up again.

Jake: [laughs]

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