Investors have a long history of wanting to know what the market does next. And why wouldn’t they? It’s the quickest way to riches.
That demand has had a constant supply of people foretelling the future. cAnd what stories they sell. They weave confident tales around a few data points that prove what the stock market or the economy will do next.
Except, it’s never that simple.
Take inflation. Its rate is tied to billions of people making financial decisions every day. Decisions tied to the income they want to make versus what their job will pay. Decisions tied to the number of products a company makes versus how many their customers will buy. Decisions tied to the price a store charges versus what consumers will pay. Decisions tied to how wealthy they feel that day or healthy or safe or afraid.
It’s a complex mess. There are too many unknowns — the Fed can’t even predict it. Yet, there are folks arrogant enough to think they can not only predict inflation but what the Fed will do about it. And it doesn’t end there.
There are specialized soothsayers for everything. We got gold bugs, inflationistas, doomsayers, permabulls, and more offering their niche opinion on the future. And if you pay attention long enough, you’ll realize they repeat the same thing year after year. It’s like a broken record.
And despite the silliness, it gets people’s attention because the stories are more convincing than data alone. So some investors feel reassured and act on it.
The reality is market forecasters have a long tradition of being wrong. The only difference between your local fortuneteller and market forecaster is one gets dressed up to go on CNBC. The accuracy of both boils down to dumb luck.
But therein lies the danger. Being “right” one time in a row somehow gives them credibility in the eyes of others because it creates the illusion that markets are predictable. For some reason, people ignore the multitude of times they were wrong.
The risk is in listening. Investors who rearrange their portfolios based on their forecasts end up worse off than if they’d done nothing.
No matter how much we want to know what the market does next, uncertainty is here to stay. The future is unknowable. Nobody has the power to foresee it. The solution is to ignore the fortunetellers and stay the course.
Thankfully, there’s also been a long history of people warning about the mistake of acting on predictions.
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You never can predict the economy. You can’t predict the stock market. — Peter Lynch
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No one can look ahead five or ten years and say what is the most promising industry or the best stock to own. — T. Rowe Price
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Nobody knows what the stock market is going to do or even what it ought to do. Hence, the most valuable asset in all business, which is knowledge, is necessarily absent. — Edwin Lefevre
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We deceive ourselves when we believe that past stock market return patterns provide the bounds by which we can predict the future. — John Bogle
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Attempting to guess short-term swings in individual stocks, the stock market or the economy is not likely to produce consistently good results. Short-term developments are too unpredictable. — Lou Simpson
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There will be bear markets about twice every 10 years and recessions about twice every 10 or 12 years but nobody has been able to predict them reliably. So the best thing to do is to buy when shares are thoroughly depressed and that means when other people are selling. — John Templeton
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I am skeptical about stock market forecasting by anybody, and particularly by bankers. — Ben Graham
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The influence on stock prices are so numerous and so complex that no person has ever been able to predict the trend of stock prices with consistent success. — John Templeton
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Forecasts usually tell us more about the forecaster than of the future. — Warren Buffett
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Our expectations of the future are not unbiased and do not reflect all available information. — Peter Bernstein
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In speaking of future prospects it is often difficult to make the distinction clear between what one considers the most desirable in the public interest and what one reckons to be the most probable in the actual circumstances. For unfortunately the course of events which is the most desirable is not always the most probable! — John Maynard Keynes
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I am certainly not going to predict what general business or the stock market are going to do in the next year or two since I don’t have the faintest idea. — Warren Buffett
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In my view, predicting future private market value is like predicting future Dow Jones levels: It doesn’t make any sense at all. — Seth Klarman
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Even the most serious efforts to make predictions can end up so far from the mark as to be more dangerous than useless. — Peter Bernstein
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There are economic facts and there’s economic predictions and economic predictions are a total waste. — Peter Lynch
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Economic events rarely unfold in the way stock-market people forecast them. — Ben Graham
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The fact that people will be full of greed, fear, or folly is predictable. The sequence is not predictable. — Warren Buffett
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No one can predict with any certainty which way the next 1,000 points will be. Market fluctuations, while no means comfortable, are normal. — Peter Lynch
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In all my 60 years in the stock market, I never found anyone whose opinion of what the stock market would do next week or next month was worth heeding. — John Templeton
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Extrapolation is usually right, but not valuable, and predictions of deviation from trends are potentially profitable but rarely right. So far, macro-economic forecasting doesn’t represent the path to superior investments. — Howard Marks
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If we really knew what the future will bring that is all we would have to know; but since stock market people can only guess the future and since they have the embarrassing habit of guessing wrongly, it seems best not to lay too much stress upon forecasts. —Ben Graham
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No one, not even the most experienced trader, economist or businessman can predict with certainty the course of the stock market. — Bernard Baruch
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No one really knows anything about what will happen in the distant future, but analysts and investors have strong views on the subject just the same. — Ben Graham
Last Call
- Reducing Noise & Bias In Investing – A. Roth
- The Precautionary Principle: Better Safe than Sorry? – Farnam Street
- Little Stories – M. Housel
- Layers of Conviction – Neckar’s Notes
- Investing Patterns – Behavioral Value Investor
- Exit, Voice, BlackRock – R. Lowenstein
- Howard Marks: Embracing the Psychology of Investing (podcast) – Invest Like the Best
- Robert Cialdini on the Psychology of Influence (podcast) – MiB
- Interview: Marc Andreessen, VC and Tech Pioneer – Noahpinion
- Hot Pants, Love Potions, and the Go-go Genesis of Southwest Airlines – Texas Monthly
