Why Bold Market Predictions are Meaningless

 

Good news: the market is going to rally 10% by year’s end.

How do I know that? Because the latest cover of Barron’s told me so.

Well, that’s not exactly what they said. Here’s what they said: “Stocks Could Rally More Than 10% By Year End.”

Oh, well … could rally. Not exactly going out on a limb there, Barron’s.

Anything could happen. Stocks could fall another 10% by year’s end. Stocks could rally 20% by year’s end. I could win a Pulitzer Prize for writing (okay, probably not). The word “could” automatically saps a so-called prediction of any real weight. But, when you package the word “could” in a headline that includes the words “Stocks Rally More Than 10% By Year End,” it gets lost in the shuffle. Most people only pay attention to the part about stocks rallying 10%, and take it as a confident, bullish stance.

Don’t be like most people.

Market “predictions” like this one from Barron’s are utterly meaningless. They’re intended to pop off the page enough to convince you to buy the magazine. They’re not based on any real facts. No one knows where the market is going from here—and anyone who tells you otherwise is lying. That’s why investing based on these bold, attention-grabbing headlines is dangerous.

Don’t change the way you invest based on market predictions and guesses. Invest based on what’s actually happening. For the past few weeks, since the market plummeted more than 10% in a matter of days, our advisors have been preaching caution, recommending that you sell off your weaker stocks and keep at least 50% of your growth portfolio in cash. That approach is based on what’s actually happening in the market, not on what we think could happen in the coming months.

And that’s how you should invest, too.

There’s always an element of speculation to investing. You buy stocks that you think will rise over time in part because you like their potential for earnings or revenue growth, or perhaps they have a revolutionary new product in the hopper. But you also invest based on what has already happened—companies that have been growing earnings and/or revenues, that have good charts, whose new products have been getting rave reviews. Otherwise, you’re investing based on pure speculation.

That’s what you’d be doing if you started buying more stocks based on a Barron’s headline. I’m not trying to pick on Barron’s, by the way. They’re not the only publication that frequently goes to the bold prediction well. Yahoo! Finance does it. Business Insider does it. The talking heads on CNBC are notorious for making bold claims, if only to wrest precious air time away from the other nine talking heads on the screen.    

Tune it all out. You know what’s happening in the market, and you don’t need someone to tell you what will happen. They don’t know what will happen any more than you do.

Stick to your principles, invest with caution in a volatile market like this, and focus on the stocks that you like most. If and when the market stabilizes and the bulls regain control, then you can be more aggressive. Until then, pay no attention to the sensationalistic headlines trying to get more clicks or sell more magazines rather than help you make money.

Invest based on what is, not solely on what “could” be. 


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