Most headline financial stories are interesting but provide little to no actionable information. In fact, trying to take action based on financial headlines could lead to serious losses and at a minimum, an under-performing investment portfolio.
When you are scanning the internet, social media or listening to the news, remind yourself that goal number one for content creators is to get your attention. Later, as you look at the prognostications, more often than not, the headlines and the forecasts were wrong.
Jeff Sommer who writes for the New York Times wrote an article at the end of 2019 that deals with investment prognostication success. The article was titled, “Forget Stock Market Forecasts. They’re Less Than Worthless.”
Jeff’s position is you will be better off if you ignore Wall Street’s predictions. The analysts are smart and they look the part. Unfortunately, when you review their predictions, they are flagrantly inaccurate.
As Jeff says, “They are as reliable as a weather forecaster who always calls for balmy sunshine in a city where it rains or snows a lot. It is true that they are right about the market’s direction more than they are wrong. But that’s because most of them say the market will rise in the next year, which happens about 70 percent of the time.”
In his article, he summarizes some key facts from a study conducted by Paul Hickey of Bestoke Investment Group. The study confirms that the more specific that Wall Street gets, the more inaccurate they are!
The forecasts where often off by staggering amounts.
The bottom line is you should not rely on the forecasts when making short term investment decisions. Treat the information as entertainment and not robust research and deliberation that will make a difference.
Economies and capital markets are interconnected and extremely complicated. It demonstrates a complete lack of humility and arrogance that these wizards of Wall Street can actually stand in front of the cameras and make their short term market comments with confidence.
Here are a few simple truths that we need to remember when making investment decisions:
Over the long term, stocks will outperform bonds
Stocks are more volatile than bonds
Holding both stocks and bonds will tend to reduce the potential risk or volatility of your portfolio.
So how should you view the information that you are bombarded with?
My recommendation is you view the content as interesting entertainment, but don’t use the dramatic headlines to drive your decisions.
Here’s a link to the article if you are interested.
As always, don’t hesitate to contact us if you would like to connect on your personal financial plan.
This material is provided for general information and is subject to change without notice. Every effort has been made to compile this material from reliable sources however no warranty can be made as to its accuracy or completeness. Before acting on any of the above, please make sure to see a professional advisor for individual financial advice based on your personal circumstances.