Jim is a 10 year old kid and was fascinated how magicians predict the number they would roll on a dice at their will. Jim thought he could practice and do the same. He kept practicing for a year and one day he did it. The very next day , he puts on a show for his friends he rolled the number he predicted correctly a few times but not always. What happened there? Most of us would think he got lucky the previous day.
Now on wall street there are many analysts who make these predictions on regular basis. We would read that “Analyst A got 7 out of 10 prior predictions right!” just like Jim was able to correctly predict the number he would roll 7 out of 10 times. The ones who know ,never tell the market what is going to happen just like a magicians who keep their secrets.
Nobody knows whether the market goes UP or DOWN. Remember Lehmann brothers, the investment bank that went broke in 2008 after 169 years in business. Whether the market goes DOWN or UP just stay invested. When the market is DOWN, your 401K contribution will buy you more units of your fund. When the market goes UP, your portfolio value goes up too. Don’t make decisions based on some news. Look at the market today in 2019 after the worst recession in 2008, the market has recovered and is making new highs every day. I understand that past performance is not an indicator of future performance. However this is a data point.
When your predictions are not holding up then predict often. This is what the wall street analysts follow. They keep putting out their analysis and their predictions. There are very few good analysts, some average analysts and others who want to be good analysts.
The oracle of Omaha, Warren Buffett of Berkshire Hathaway said he missed out on Amazon. He is the man everyone looks up to. One thing he has been right about the US stock markets is that markets will keep going up even though there will be brief periods of recessions and market downturns. He has seen every market crash since 1940 (Warren Buffet was born in 1930) and he has done well.
Late John Bogle, founder and chief executive of Vanguard Group created the first index fund. He says stay invested , if you want to protect yourself stay 50% in stock and 50% in bonds and if you can take a little more risk stay 75% in stock and 25% in bonds based on your risk appetite.
Here is an exercise. Take a few past analyst reports and read them. Also see if they are invested in the security or not which they do mention at the end of the article. Then see how many times their predictions came true and then decide if they are geniuses or just lucky.
Ignore the noise!
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