The "No Prediction" 5-Stock Watchlist! 

Alright, let's chat about something super important for your money: those "experts" who try to tell you what's going to happen with the economy or the stock market. You know, the ones always popping up on TV or social media, making bold claims.

First off, let's talk about Robert Kiyosaki. His book, Rich Dad, Poor Dad, is a massive hit, right? Sold over 30 million copies, made him a total guru in personal finance. People love him, and for good reason - he's taught a lot of folks a lot about money.

But here's the kicker: when it comes to predicting the economy, Kiyosaki's track record is, well, let's just say it's not quite as stellar. For the past 15 years or so, he's been making about two big predictions every year. Think real estate crashes, market crashes, economic collapses, you name it. And guess what? Not a single one of those predictions has really panned out. Seriously, not one!

So, what's going on here? How can someone so brilliant in one area be so off the mark in another? Why can't that Midas touch he has with personal finance transfer to predicting huge economic shifts?

Turns out, there's a pretty cool idea that helps explain this, called the "Halo Effect." Barry Ritholz, a super smart fund manager and author from the US, talks about it. Basically, it's when we see someone who's incredibly successful in one field, we tend to think they're just as smart and capable in every field. We assume their magic works everywhere. Like, if they're a fantastic musician, they must also be a genius stock picker. But as we just saw with Kiyosaki, that assumption can totally backfire and cost you a lot of money if you rely on their judgment where they have zero expertise.

And it's not just Kiyosaki getting called out. Barry Ritholz isn't shy about pointing out anyone super successful who tries to do the impossible - which, for him, means making reliable predictions. Barry even wrote an awesome book called How Not to Invest, where he lays out all the common mistakes investors make. His big takeaway? Just by avoiding these common blunders, you can seriously boost your long-term returns.

One of his core messages is super simple: "Nobody knows anything." So, take all those expert predictions, especially about the future of the market, with a huge grain of salt. He gives examples from everything from movies and music to politics and, yes, the stock market. His firm belief is that no one, literally no one, knows where the market is headed or how it will behave in the short term.

Think about it: Did anyone predict a global pandemic would shut down the economy in 2020? Or that Russia would invade Ukraine? Or the fastest interest rate hikes in US history leading to a double-digit loss for stocks and bonds in 2022? Nope, nope, and nope!

Yet, we love forecasters, don't we? There's no shortage of people on social media every single day dishing out predictions. It's like we just can't accept that the world is, at least a little bit, random. We crave that strong leader who can tell us what's coming and keep us safe.

But in reality, investing based on stock market forecasts has almost never worked consistently. So, honestly, the best thing you can do for your money is to stop listening to any forecasts or predictions, especially the short-term ones.

"Hold on," you might be thinking, "this is confusing! How do I make money if I can't predict the future? How do I know what stocks to buy or how much cash to hold if I can't predict the market in the next year?"

Great questions! The trick is to understand the difference between certainty and probability, and between short-term market moves and long-term trends.

For instance, there's a high probability that the stock market will continue to go up over the long term. But there's no certainty about it. I mean, I can tell you with pretty high probability that the Sensex (India's main stock index) will hit 200,000 in a few years, but I absolutely cannot tell you the exact date. See the difference? One is an educated guess about a broad trend; the other is trying to be super precise and make an exact prediction.

And that's the whole point. When you're investing, the more you lean on probabilities and long-term trends, and the less you rely on certainties and short-term market movements, the better off you'll be.

Now, let me show you something cool.

Check out this chart This is how my "No Prediction" portfolio has performed against three major indices over a 10-year period, from December 2014 to December 2024.

My "No Prediction" portfolio has only just barely underperformed the BSE Small Cap index, which is pretty awesome. But it's actually outperformed the other two major indices.

The strategy behind this "No Prediction" portfolio is ridiculously simple. I start the year with, say, ?100. I put ?50 into a diversified 20-stock portfolio and the other ?50 into a fixed deposit earning, let's say, 6%. Then, at the end of the year, I rebalance back to that 50:50 split. If my stock portion grew to ?60, I sell ?10 worth of stocks and put it into the FD. If the FD grew and stocks dropped, I take money from the FD to buy more stocks, bringing both back to ?50. I do this every year for 10 years.

Why? Because I'm not predicting whether the market will go up or down. I'm just assuming there's a probability of either happening.

If stocks go up, I take some profits and secure them. If they go down, I buy more when they're cheaper. I don't listen to gurus, and I don't make my own predictions. I just stick to the 50:50 rule and rebalance annually.

Okay, so what about the 20-stock part of the portfolio? Even there, no predictions!

This is an equally weighted portfolio of 20 stocks. The rules are pretty straightforward:

1. Price to Book Value: All stocks must be trading at 0.8 times their book value or lower. Basically, I want to buy them at a discount of at least 20% to what they're theoretically worth.
2. Debt-to-Equity Ratio: Their debt-to-equity ratio must be between 0 and 1. This means they have a strong balance sheet - not too much debt, which keeps them safer.
3. Liquidity: Minimum of ?1 million in average daily trading liquidity over the last 12 months. This ensures I can actually buy and sell them easily.
4. Revenue: Minimum revenue of ?2 billion for the latest financial year. We want decent-sized companies.

That's it! Nothing else. No deep dives into sectors, no guessing future earnings, no analysis of big spending plans. Remember, it's a "no prediction" portfolio. I don't care where their earnings will be in 3-5 years.

My goal is simple: Buy stocks that are cheap (at a discount to their intrinsic value) and have strong balance sheets (to ensure they don't go bust), and then hold them for about a year. If they do well and their valuations climb, I replace them with new, cheap stocks and repeat the process. I want to limit my risk by buying low and let the upside take care of itself. Again, no predicting their price a year or two from now. I'm just betting on a turnaround for undervalued, well-managed companies.

And as you've seen, this simple, no-prediction approach has worked quite well. It's beaten two out of three benchmark indices by a good margin, even though half the money was always sitting in a relatively safe fixed deposit!

Now, for something even more exciting.

What if, instead of 50%, you put 75% into stocks and only 25% into fixed deposits? This portfolio has done even better, outperforming even the BSE Small Cap index significantly. So, if you're like me and believe the Indian stock market will keep hitting new highs over the next decade, you could increase your stock allocation to 75%.

However, I wouldn't go beyond 75%. Why? Because then you start moving into the realm of certainty. You're basically saying you're certain stocks will keep going up, and that violates our core rule of investing based on probabilities, not certainties. So, 75% stock allocation is probably the max you should consider.

Finally, the moment you've been waiting for!

Here are 5 of the 20 stocks that my "no prediction" rules would have shortlisted at the start of the year. These are the ones that met all our criteria: trading below 0.8x book value, debt-to-equity less than 1, revenues over ?2 billion, and decent liquidity (?1 million average daily).

So, if you want to build your own "no prediction" portfolio, these are 5 stocks you can put on your watchlist. Then, go find another 15 that fit the same rules. As long as they tick all those boxes, don't overthink it! If history is anything to go by, you could end up with market-beating returns over the long term.

To wrap it up: Don't fall for expert predictions about the stock market's near future - nobody truly knows. Instead, lean on the long-term trends, like the awesome growth of the Indian economy and its stock market. My "no prediction" portfolio, which doesn't guess market moves but focuses on buying undervalued stocks, has done really well. I've just shown you 5 great starting points for your own portfolio. There's a strong chance this strategy could help you beat the market over time.

Let me know what you think! That's all for now. See you in the next one! Happy investing!