“No one is wiser than Socrates.”
– Plato, Apology, (21a)
In the 5th century BC, the Greek philosopher Socrates was presented with a riddle. The Oracle of Delphi proclaimed that Socrates was the wisest man in Athens, but Socrates, who questioned almost everything and everyone, claimed that he knew very little. So, he wondered, how could he be the wisest man? After interrogating the poets, craftsmen, and politicians of Athens, Socrates realized that although they portrayed themselves as having great knowledge, they did not fully understand the things they claimed to know. This gave Socrates the answer to the riddle: “So I am likely to be wiser than he to this small extent, that I do not think I know what I do not know.” Socrates had the wisdom and humility to acknowledge his ignorance.
If Socrates were alive today, he would likely be questioning the knowledge of some of our modern-day forecasters such as astrologers, futurists, and stockmarket prophets (weather forecasters, often derided for their inaccuracies, are actually getting much better at their craft). As the year draws to a close, the financial media will be a wash in predictions for what 2026 will bring to the stock market. And if history is our guide, the “experts” will probably be way off the mark. They continue to claim to know what they do not – and cannot – know.
Five Years Of Forecasts From The Prophets
The five-year period from 2020 to 2024 offers a clear demonstration of just how dismal the expert market forecasts have been. According to a Bloomberg compilation of forecasts from soothsayers at global investment banks, the track record is as follows:
2020:
The average of 21 forecasts was for an increase of 3.7% in the S&P 500 index, with a high estimate of 8.3% and a low estimate of -7.1%. The year was characterized by a pandemic-driven crash and a stunning recovery, and the S&P closed the year 16.3% higher.
2021:
The average of 17 forecasts was for an increase of 6.5% in the S&P 500 index, with a high estimate of 17.1% and a low estimate of 1.2%. Clearly the pundits were optimistic but not optimistic enough – the market index rose by 26.9%.
2022:
The average of 19 forecasts was for an increase of 4.9% in the S&P 500 index, with a high estimate of 12.3% and a low estimate of -7.7%. The experts had grown somewhat more cautious, but not cautious enough. The market fell 19.4% amid rising interest rates, soaring inflation, and a bloodbath in technology stocks.
2023:
The average of 22 forecasts was for an increase of 6.1% in the S&P 500 index, with one bold prediction of 23.7% on the high end and an estimate of -11.5% on the low end. The market ended the year up 24.2%, driven by a rebound in a handful of tech giants. At least someone got close this time!
2024:
The average of 19 forecasts was for an increase of 1.7% in the S&P 500 index, with a high estimate of 9.0% and a low estimate of -12.0%. Once again, caution was misplaced. The market closed the year 23.3% higher as recession fears faded and tech stocks continued to shine.
The performance of these prognosticators was absolutely dismal by any standard. Not only were they way off as a group (their averages were nowhere near the market return in any year), but all the actual returns were outside the full range of analyst forecasts in every year. Not one of the pundits guessed high enough in the up years or low enough in the down year. Not one out of 98 total forecasts. This track record is much more than bad luck. It is a reminder that when it comes to predicting the market, even the experts are essentially flying blind.
Knowing What You Do Not Know
These strategists are not stupid. They are intelligent, well-educated, experienced, and they have all the best resources at their disposal. So why are their forecasts so far off the mark? The answer lies in the way markets respond to the unknown.
Stock markets are complex adaptive systems that quickly incorporate all known information. All the variables that the strategists consider – economic data, geopolitics, corporate earnings, technological change, and many others – are known by the investment community and are already incorporated into market prices. Significant increases or decreases in market prices are driven by unexpected changes to these variables or by unforeseen events that are completely outside the strategists’ models (think of COVID or the rapid evolution of AI). Since markets are almost entirely driven by unexpected events, it is not surprising that the expected outcomes predicted by the pundits are so woefully wrong.
Choosing Humility Over Hubris
Fortunately, you do not have to predict the future to be a successful investor. Over the five-year period detailed above, the strategists foretold an annualized return of 4.6%. The actual annualized return was 12.7%, which is a total return of 82.2%. An investor could have achieved this return (before fees) simply by ignoring the pundits, buying a market index, and leaving it alone for five years.
This approach is often dismissed as “passive” or simplistic. But it is rooted in a deeper wisdom: the acknowledgment of our own limits. Like Socrates, wise investors understand that knowledge begins with recognizing what you do not know.
Socrates infuriated his fellow Athenians by exposing the limits of their knowledge. He made no grand claims; he simply asked difficult questions and acknowledged uncertainty. This behavior made a lot of powerful people very uncomfortable. He was labeled a danger and ultimately sentenced to death.
Today, buy and hold investors are frequently denounced as unsophisticated, lazy, and even dangerous. The irony, of course, is that they are often the wisest people in the room. Not because they know more, but because they know they do not know. And that could very well be the greatest wisdom of all.