Market strategist = diaper

One of my favorite Wall Street jokes: How is a market strategist like a diaper? They both need frequent changing and for the same reason.

So, why are market strategists full of…um…stuff?  Because timing the market is a waste of time. 

Each year prognosticators try to guess where the stock market will go over the next year, and almost every year they are off by a mile.  This is more likely to be the case in 2011 because almost every market strategist is bullish.  The only thing worth less than a market strategist’s prediction is a group of market strategist’s predictions–especially when they all agree.

Why are market predictions so inaccurate?  Because the things that most impact market returns over a given year are also almost impossible to predict: 

  • Will North Korea lob nukes at South Korea? 
  • Will Israel attack Iran’s nuclear facilities? 
  • Will bond markets abandon Japanese, European and U.S. bonds en masse driving up interest rates? 
  • Will the European Union fall apart? 
  • Will the world economy continue to recover at its current pace? 
  • Will China engineer a smooth or crash landing in an attempt to slow inflation and real estate speculation? 
  • Will U.S. unemployment dive from 10% to 5%?
  • Will drug companies discover a cure for cancer?
  • Will accurate prediction cease being an oxymoron?

None of these thing is strictly predictable, but if any of them occur (except that last), they’d have a huge impact on markets.  You’d have better luck trying to predict earthquakes and hurricanes (things entirely deterministic and yet experts almost never get annual predictions right).

So, why do people crave such predictions?  Because we’d all like a sure thing.  Wouldn’t it be great to have next year’s newspaper and know exactly what stock prices would be a year from now?  We’d all love it, and the entertainment factory that is called news sells tons of advertising each year knowing we’d all love those answers.

But, those answers are worth what we pay for them–nothing. 

Instead of reading the horoscope in hopes that we’ll be lucky today, we should get to the daily grind of making things happen for ourselves. 

That’s what I’m going to do: resist the temptation to read or make predictions, and instead do research on good investments at cheap prices.  There’s a new year’s resolution that works.

Nothing in this blog should be considered investment, financial, tax, or legal advice. The opinions, estimates and projections contained herein are subject to change without notice. Information throughout this blog has been obtained from sources believed to be accurate and reliable, but such accuracy cannot be guaranteed.

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Market strategist = diaper