Don’t Try to Predict Markets

It would be wonderful if we could avoid the setbacks with timely exits, but nobody has figured out how to predict them.

— Peter Lynch, Money Manager

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’s about to happen. That’s the message sent out every day by market strategists, brokers, analysts, mutual fund managers and the media — predict the future accurately, and you’ll score big.

In truth, no one can accurately forecast market movements on a consistent basis. Why? Because we’re talking about the future, and the future is by its very nature uncertain. We cannot predict with absolute confidence the future 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 the major firms on Wall Street were predicting up markets for the year. As we now know, their predictions were disastrously wrong.

The upshot: Even the brightest analysts, the most highly regarded money managers in the world or the most plugged-in and well-respected financial publications can seldom tell you what’s going to happen next, let alone give you reliable advice on how to position your investments to take advantage. That doesn’t mean that a fund manager, a talking head on CNBC or the guy who walks his 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.