It is that time of year when crystal balls and fortune tellers become popular as people seek advice about the future. Perhaps with the advancement of artificial intelligence, Zoltar, the fortune-telling machine in the 1988 movie Big, might just come to a town near you as a boardwalk oddity.

Forecasts increase in demand in the financial markets, where investors seek expert advice about the market and the economy in the coming year. Because investing utilizes the power of compounding and the time value of money, it is only natural to survey expectations of the future.

After assessing what has happened in the previous year, it is time to evaluate whether investment plans and strategies remain relevant and whether there is a need to change them.

Looking back at the past 12 months, the Philippine economy and stock market have been challenging, to say the least. Take online gaming as an example.

This sector has been the darling of the market, with promises of sustained double-digit growth. However, within a matter of weeks in the middle of the year, it became clear that strict regulation was coming and would cap growth below what the market had been expecting.

Forecasters were quite optimistic despite emerging risks outside the Philippines. Inflation was decelerating, and expectations were already building around policy rate cuts from the Bangko Sentral ng Pilipinas (BSP). The midterm election in May was also expected to drive consumption higher.

The US election in November last year returned President Donald Trump to the White House, and one of the surprise actions in 2025 was “Liberation Day” in April, which created global anxiety over trade due to massive tariff hikes and an on-off-on approach to negotiations between the US and the rest of the world.

How optimistic were the forecasts? In some pronouncements, the stock market index was expected to end between 6,500 and 7,800. In hindsight, many assumptions did materialize. Inflation decelerated in 2025, the BSP delivered policy rate cuts, and tariff hikes did not result in a global recession or a contraction in Philippine trade.

Despite this, the Philippine Stock Exchange Index is currently below 6,100 and is likely to end 2025 down by 7 percent compared with last year. This is not the first time reality has fallen short of expectations. What investors need to realize is that forecasts of the PSEi are forecasts of value, while the index itself measures stock prices. As Warren Buffett pointed out, price is what you pay, and value is what you get.

Moreover, the method used to estimate the PSEi’s value or target level is quite static and linear, and by default assumes growth or positive returns. Fundamentally, investors may be getting value, but visually, portfolios reflect negative returns, at least for now.

A common argument is that this year will be different because the PSEi’s earnings valuation, or price-to-earnings multiple, has been trading more than two standard deviations below its mean. This rests on the assumption that stock prices or valuation multiples follow a normal, bell-shaped distribution.

But what if they do not? What if the distribution is not normal, making it more difficult for stock prices to revert to their mean?

This means forecasts can disappoint investors not just for one year but for multiple, possibly successive years, as we are seeing now.

Does that mean investors should ignore PSEi forecasts? Not at all. These can be useful estimates, but knowing their pitfalls means investors should ask for forecasts under different scenarios and assign probabilities to each. As conditions change, so should expectations.

Change is one of the key messages in Big. The protagonist, Josh, undergoes a massive transformation, but the lesson he learns from Zoltar is simple: while the future matters, attention must also be paid to the present. The best forecast for tomorrow is today.