August 20, 2020

Investing Principle #5: Don’t Try to Predict Markets

Wall Street and the popular financial press want you to believe that, in order to make money in the stock market, you need to invest based on what is about to happen. That is the message sent out everyday by market strategists, brokers, analysts, mutual fund managers and the media.

Predict the future accurately, and you will score big. To score big though, you need to make TWO correct predictions – when to get in the market and when to get out. Sometimes though, a single media outlet will send out contradictory messages on the very same day.

In truth, one can accurately forecast the market movements on a consistent basis. That’s because we are talking about the future. The future, by its very nature, is uncertain. We cannot predict with absolute confidence the direction of the economy, stock prices, or events that will have an impact on the markets.

Consider this one notable example of many. At the beginning of 2008, right before the beginning of the Great Recession, all major firms on Wall Street were predicting up markets for the year. As we now know, their predictions were disastrously wrong.

Even the brightest analysts, the most highly regarded money managers in the world, and the most plugged-in and well-respected financial publications can seldom tell you what is going to happen next, let alone give you reliable advice on how to position your investments.

That does not mean a fund manager, talking head on CNBC or the person who walks their dog down your street every morning won’t sometimes get it right. They will. The credit, however, usually goes to luck, not skill.

And your financial future is too important to leave to chance.

As I tell all of my clients, I do not think I should guess with your money!