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Smart Calls (In Hindsight)


How often have you heard me say, "you can't predict the market"? That's the only prediction I know that's apt to be right. This year, as usual, one surprise after another leveled investors who thought they knew the score. The record should remind you that diversification -- and keeping your options open -- are the only intelligent response to an unpredictable world. The scorecard for '04:

Business growth. A tidy performance this year, with companies boasting the highest profit margins in half a century. But last spring's employment spurt petered out, inflation (though mild) embedded itself and consumer confidence slid. Today's worldwide industrial slowdown suggests lackluster growth for the first part of 2005. After that, who knows? If business re-accelerates, stocks will do better, and bonds, worse; if not, vice versa. "This [the direction of growth] is one of the more important bets for 2005," says Lakshman Achuthan, managing director of the Economic Cycle Research Institute. Stocks typically decline six or seven months before business tops out.