Don Steinmann's Investment Tip of the Week

Don Steinmann's
Investment Tip of the Week

Horseshoe Nails and Predicting the Market

There is no way you can escape it. On TV, radio, newspapers and the web, there are people happy to tell you what’s going to happen in the stock market over the next day, week, month, year, decade. And they have very reasonable sounding arguments about why what they are saying is almost inevitable. However, consider the following seven hundred year old proverb:

For want of a nail the shoe was lost.
For want of a shoe the horse was lost.
For want of a horse the rider was lost.
For want of a rider the message was lost.
For want of a message the battle was lost.
For want of a battle the kingdom was lost.
And all for the want of a horseshoe nail.

The point of the proverb is that small things can eventually have huge consequences. This happens in politics, weather, sporting events, and most especially in the financial markets. The problem is, there are literally a countless number of ‘horseshoe’ nails that can amplify to change the markets. A new invention, a whistleblower, an article in a financial publication, or even someone just selling 100 shares of XYZ Corp. There is just no way to know.

That doesn’t mean you should ignore what’s going on in the markets and in the economy. It was pretty clear in 1999 that buying tech stocks was a bad idea, or in 2009 that buying almost anything was a good idea. But predicting exactly what’s going to happen and when? It would be easier to decide in advance which horseshoe nail will bring down a kingdom.

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