Avoiding Future Prediction
The unknown is a scary thing. That’s why people have always been fascinated by things like horoscopes and fortune tellers. It’s a comforting idea that the future is knowable. Unfortunately it’s anything but, especially when it comes to investing. Stephen Hawking is one of the greatest physicists of our time. He has stated that the most powerful computer that could ever be built couldn’t predict the weather accurately more than 5 days in advance. Imagine now how infinitely more complicated the stock market is than the weather. Cloud formations can’t change their minds, but people do it every day.
This means you can’t look into a crystal ball and determine what will happen in the stock market tomorrow. People who publish charts showing patterns that they think will repeat, or analysts who confidently predict that a stock will hit a certain price in 2 years have no more of a clue than you do. These people make their money by predicting, not by investing.
So does that mean the stock market is just random? Sort of a form of gambling? Not at all. Though I cannot tell you what the weather will be like on January 15th, I darn well better have a coat and umbrella handy. When it’s winter, it’s smart to have a coat. When it’s summer, it’s smart to have shorts and a t-shirt. With stocks it’s a matter of price and value. If a stock is expensive it’s smart to stay away. Maybe it won’t ‘rain’ on your purchase, but it’s investing winter, the odds are against you. And when stocks are cheap, it’s a smart idea to buy. Yeah maybe you’ll have the equivalent of a summer shower, but more likely the sun will shine on your investment.
No one can predict the future no matter what they may claim. So put aside the crystal ball and concentrate on searching for a good value instead. In the long run, that’s what can bring you a sunnier portfolio.