There's a saying in the investment world that the perma-bears and perma-bulls, that is those who are always predicting a market decline or run-up, are bound to be right every now and then. I guess that's the investment world's variation of: Even a blind pig finds an acorn every now and then OR Even a broken clock is right twice a day.
Still, when someone "predicts" the latest market crash or bull run, we are all supposed to bow down to their infinite wisdom. Generally, I don't. Not because their predictions are not predicated on sound reasoning, but rather because the proximity of their prediction to the actually occurring event is happenstance. No one can predict the future with exactitude.
A logical and sound assessment such as "our current monetary policy will lead to hyper-inflation" is vastly different from the hyperbolic and unfounded statement "the fed will make your money worthless by 2014." And should the second statement come to fruition, it was merely a lucky guess.
Most people know this intuitively, but still fall prey to the sublime and manipulative marketing practices of the financial services industry. For example, I regularly see books for sale or courses promoted with language like: "By the man who successfully predicted the 2008 crash!" Really? Even IF you could show me the person who said the the Dow would lose 30% of its value in 2008, I would still maintain that the prediction had nothing to do with the timing of the event...that it was purely coincidence. (By the way, and proving the point a bit more, the crash actually began in October of 2007 and didn't complete until March of 2009. Where is the person who called that?) Remember, no one can predict the future with exactitude.
Even worse is the climate created by such assertions. I regularly have to remind clients that I can NOT foresee the future. Of course I believe my macro-economic calls of hyper-inflation, market devaluation and other economic woes, but I simply can not say WHEN that will occur. Can I venture a guess? Sure. Should you pack your bags based on that guess....well, you know the answer to that!
Rather we should put our energies to work on productive enterprises and activities where we do have some measure of control and determinable outcomes. By this I mean to discipline ourselves to save and to do so in a protective fashion. You can read how to do that here and here.
Finally, beware the charlatans who claim to have "predicted the crash of 'whenever'" and, for a minimal fee, will tell you how to avoid doomsday! They are liars and are trying to profit from your fear. By the way, why do they want your money if we are going to doomsday anyway?!?
I predict there will be an automobile crash tomorrow in Louisiana. Am I right? Probably 100% accuracy. However, I can not, nor can anyone else, tell you when or which intersection to avoid. But while I will never charge you a fee to advise you to buckle up and drive carefully, some people are not so scrupulous.
Remember the story of the tortoise and the hare. Slow and steady tends to win on a consistent basis. The hares (those touting boom or bust investing methodologies - including market timing) wear themselves out with worry and generally wind up in the wrong place at the wrong time. It takes a 100% gain to offset a 50% loss - that's a tall order for most investors.
ReplyDeleteVery true indeed. Thanks for the comment.
Delete