While everyone is looking ahead to 2010 in an attempt to peer into the future direction of the market, I suggest we would be vastly better off doing no such thing.
Look at all of the investment predictions of all of the so-called gurus and you will know what I mean.
Statistics show, the forecast accuracy of the guru’s is no better than 50%. Flip a coin and you would get the same result. Half the forecasters were wrong and half were right, but more importantly, can we look to those who have been right and see if we have enough “juice” in their accuracy to make bets along side of them?
Unfortunately, not really, Jim Cramer, 46%. Bob Brinker, 46%. Ken Fisher, 58%. Louis Navellier, 54%.
Even the top performer had a margin of accuracy of only 63%. This is the TOP guy!
What about our greatest economists? Do I have to spell out Greenspan’s legacy or Bernanke’s abilities of prediction? They are flawed, very flawed.
Nouriel Roubini, who some have come to call “Dr. Doom” called the decline in Real Estate to a tee. He seemed to forecast the terrible decline of 2008 and 2009, but has missed this current economic rebound and stock market increase by a mile.
Don’t get me wrong. He is a very smart guy, I mean a very, very smart guy. He’s just human and really has no idea what the future has in store. Peter Lynch, the famous and successful money manager of the Fidelity Magellan fund wrote, the reason he thought he was so successful was that Fidelity did NOT have an economist on the payroll.
Warren Buffet has always warned about the folly of forecasting and said numerous times he has no idea what the market will do. In fact he says he doesn’t need to know and it doesn’t matter to him. If he purchases great companies at reasonable prices, the market will eventually reflect the value of the business and his fortune will be made.
This is not to say that research, experience, smarts and effort can’t get you somewhere. It just means that it is not a human ability to foretell the future. Events can move in a particular direction for a particular period of time, but we cannot tell when some other event that we are completely unaware of will intervene and change everything. For instance, did anyone see the internet coming? Google, Amazon, Ebay, Apple. How could anyone of us know these would be the survivors who would change our world so much? Political events, Iraq, Pakistan, Al Qaida, Russia’s resurgence China’s growth, India’s expansion. More and more. No one can tell what wonders and tragedies tomorrow will bring.
So what do we do? How can we get anything right if we can’t know what is going to happen and prepare for it to capitalize on?
The answer is simple and beautiful. You don’t need to know the answers to these questions. You don’t need to know or do anything about incidents or outcomes or upshots or consequences of things under which you have no control.
You need to know what is under your control and make the right decisions.
For example, can you live within your means? Can you save to the best of your ability? Can you direct your attention to things that COUNT in your life rather than things that give you only short-term gratification?
Now I’m into short-term gratification as much as the next guy, but that is AFTER I have taken care of the important stuff.
So this year, here’s what I think…
If you want to invest in stocks, make sure you have a 5 year time horizon and GET INVESTED. Forget what might happen over the next few months. It’s immaterial.
Make a plan that if the market should take another dive, even if it is ferocious, you will commit some reasonable amount of money to investing in it. Just keep your eye on the horizon and your ultimate goal.
Don’t put all you money into the market. Rather, look for other reasonable opportunities. A new business you can afford. –Most REAL Money is made by starting your own business.
Keep diversified.
Don’t buy any stock you hear about through a neighbor, broker, insurance agent, barber, bartender. You get the drift.
Make a list of what is in your control and what is not.
Remember that all things are cyclical, so if the economy is bad and you are okay—meaning you still have a job, and money in the bank that can take you through 6 to 12 months of no work. Don’t save your money at 1-2% like everyone else is doing.
Invest it. Remember we are due for an up cycle. Buy when everyone is selling. Invest when everyone is saving and save when everyone is investing.
That means, when the market has been up for a while, and the economy looks great and all is good, take some money off the table and put it in secure savings accounts. This way, when the economy starts to turn and IT WILL…you will have money safely tucked away ready to invest when everyone else is panicking. You will finally be buying low and selling high, like you are supposed to.
This is how real wealth is created.
While everyone is looking ahead to 2010 in an attempt to peer into the future direction of the market, I suggest we would be vastly better off doing no such thing.
Look at all of the investment predictions of all of the so-called gurus and you will know what I mean.
Statistics show, the forecast accuracy of the guru’s is no better than 50%. Flip a coin and you would get the same result. Half the forecasters were wrong and half were right, but more importantly, can we look to those who have been right and see if we have enough “juice” in their accuracy to make bets along side of them?
Unfortunately, not really, Jim Cramer, 46%. Bob Brinker, 46%. Ken Fisher, 58%. Louis Navellier, 54%.
Even the top performer had a margin of accuracy of only 63%. This is the TOP guy!
What about our greatest economists? Do I have to spell out Greenspan’s legacy or Bernanke’s abilities of prediction? They are flawed, very flawed.
Nouriel Roubini, who some have come to call “Dr. Doom” called the decline in Real Estate to a tee. He seemed to forecast the terrible decline of 2008 and 2009, but has missed this current economic rebound and stock market increase by a mile.
Don’t get me wrong. He is a very smart guy, I mean a very, very smart guy. He’s just human and really has no idea what the future has in store. Peter Lynch, the famous and successful money manager of the Fidelity Magellan fund wrote, the reason he thought he was so successful was that Fidelity did NOT have an economist on the payroll.
Warren Buffet has always warned about the folly of forecasting and said numerous times he has no idea what the market will do. In fact he says he doesn’t need to know and it doesn’t matter to him. If he purchases great companies at reasonable prices, the market will eventually reflect the value of the business and his fortune will be made.
This is not to say that research, experience, smarts and effort can’t get you somewhere. It just means that it is not a human ability to foretell the future. Events can move in a particular direction for a particular period of time, but we cannot tell when some other event that we are completely unaware of will intervene and change everything. For instance, did anyone see the internet coming? Google, Amazon, Ebay, Apple. How could anyone of us know these would be the survivors who would change our world so much? Political events, Iraq, Pakistan, Al Qaida, Russia’s resurgence China’s growth, India’s expansion. More and more. No one can tell what wonders and tragedies tomorrow will bring.
So what do we do? How can we get anything right if we can’t know what is going to happen and prepare for it to capitalize on?
The answer is simple and beautiful. You don’t need to know the answers to these questions. You don’t need to know or do anything about incidents or outcomes or upshots or consequences of things under which you have no control.
You need to know what is under your control and make the right decisions.
For example, can you live within your means? Can you save to the best of your ability? Can you direct your attention to things that COUNT in your life rather than things that give you only short-term gratification?
Now I’m into short-term gratification as much as the next guy, but that is AFTER I have taken care of the important stuff.
So this year, here’s what I think…
If you want to invest in stocks, make sure you have a 5 year time horizon and GET INVESTED. Forget what might happen over the next few months. It’s immaterial.
Make a plan that if the market should take another dive, even if it is ferocious, you will commit some reasonable amount of money to investing in it. Just keep your eye on the horizon and your ultimate goal.
Don’t put all you money into the market. Rather, look for other reasonable opportunities. A new business you can afford. –Most REAL Money is made by starting your own business.
Keep diversified.
Don’t buy any stock you hear about through a neighbor, broker, insurance agent, barber, bartender. You get the drift.
Make a list of what is in your control and what is not.
Remember that all things are cyclical, so if the economy is bad and you are okay—meaning you still have a job, and money in the bank that can take you through 6 to 12 months of no work. Don’t save your money at 1-2% like everyone else is doing.
Invest it. Remember we are due for an up cycle. Buy when everyone is selling. Invest when everyone is saving and save when everyone is investing.
That means, when the market has been up for a while, and the economy looks great and all is good, take some money off the table and put it in secure savings accounts. This way, when the economy starts to turn and IT WILL…you will have money safely tucked away ready to invest when everyone else is panicking. You will finally be buying low and selling high, like you are supposed to.
This is how real wealth is created.
Posted in On The Money! Commentary | Tags: investing, stocks and bonds, finance, management, money management, economy, banking, bear market, market, advisors, Wall Street, financial, investments, asset allocation