At the beginning of each year, there’re many pundits, experts, self-proclaimed gurus, and other suspicious characters who’d like to sell you stuff predicting the directions of the Stock Markets.
As I personally have ample years of experience in the Stock Markets (and know for sure what’s going on), I was asked—by my three friends and my one wife— about my take on 2016.
So after thorough research, I am absolutely confident about the high probability of my forecast:
Here it is:
In the next 12 months, the US-stocks will go up and they will go down. As will the stocks in Europe, in the Emerging Markets, and even in Singapore. And in each trading day, there will be movements, in either direction.
Wait, don’t go away. Hear me out first.
Ok, I might have oversold my advice a tiny weensy bit; nevertheless, I assure you that it’s not to trick you, but to show you how it really is.
1) Several studies have shown that people prefer a Pundit who is confident to one who is accurate. And Pundits are happy to oblige.
2) Confidence in a forecast rises with the amount of information that goes into it. Nonetheless, the accuracy of the forecast stays the same.
3) Investors want to believe in someone – believe me. And forecasters want to earn a living. So one of those groups is going to be disappointed. And I think you know which group that would be.
4) Pundits are people who profess to have knowledge about things that can’t be known, and they have the combination of the skill of actors, the nonsensicality of comedians, the believability of priests, and the credibility of politicians.
As Nassim Taleb puts it in his unique and witty style:
“The tragedy is that much of what you think is random is in your control and, what’s worse, the opposite.”
Regular savings are in your control. Expectations are in your control. Your behavior is in your control. But Stock Market movements, in this uncertain world, are not.
So don’t stop with your regular investments in the stock market due to “scary” predictions. Timing the market doesn’t work, only time in the market works. Let the little dwarfs from the tribe “Compound Interest” work for you, 24/7, and let them breed like rabbits.
And please don’t make the mistake of following some expert’s advice and then pretend you know something you don’t—because your perception of risk would become warped and you would take risks you didn’t think existed and would face events you didn’t think could occur.
Understanding what you don’t know, and what you can’t know, is much more important than the stuff you actually know.
“But, but,” I hear you think, “What distinguishes us as human beings from other animals is our ability to predict the future. What happened to that scientific truth, man?”
Well, it’s rather our interest in predicting the future than our ability to predict the future.
We spend a great deal of our waking life imagining what it would be like to be this way or that way, to do this or to do that. We do this for good reasons: it’s what allows us to shape our life. And it’s by trying to exert some control over our future that we attempt to be happy. But, by any objective measure, we’re really bad at this predictive function.
We’re far too accepting of the conclusions of our imaginations; nevertheless, our imaginations aren’t particularly imaginative. They have the tendency to fill in, and then leave without telling us. Our imaginations are really bad at telling us how we would think when the future finally comes. And our personal experiences aren’t nearly as good at correcting these errors as we might think.
Just as we err in remembering the past, so we err in imagining the future. Our desire to control is so powerful, and the feeling of being in control so rewarding that people often act as though they can control the uncontrollable, despite being ill-equipped to properly preview the future, let alone control it.
Nobody can predict the Stock Markets. Not even me (what a mind-boggling revelation!). I actually have no idea, as the stock market is just a mechanism for putting a price tag on surprises.
I, however, have gotten accustomed to being uncomfortable not knowing what’s going to happen next while keeping my long-termn goals in focus. Why are returns for one year so important, anyway? That’s just the time it takes the Earth to go round the sun and I don’t see it having any other significance for my investments.
Hence, let’s keep it with Napoleon Bonaparte’s definition of a military genius:
“The man who can do the average thing when all those around him are going crazy.”
It’s the same in investing. You don’t have to be a genius to do well in investing. You just have to not go crazy when everyone else does.
And be careful with your buddies, the brain and the eyes.
The brain and the eyes may have a contractual relationship in which the brain agrees to believe what the eyes see, but in return, the eyes agree to look for what the brain wants.
Too abstract ?
This analogy might help: “A clever investor likens the market to an excitable dog, on a very long leash in New York City, darting randomly in every direction. The dog’s owner is walking from Columbus Circle, through Central Park, to the Metropolitan Museum and, at any one moment, there’s no predicting which way the pooch will lurch. But in the long run, you know he’s heading northeast at an average speed of five km per hour.
What’s astonishing is that almost all of the market players, big and small, seem to have their eyes on the dog and not on the owner.”
What are your eyes looking at throughout this year?
Special message for all you regular Tacomob-Readers:
In case you find this post familiar, it’s because I have published—more or less—the same post in early 2015. Magically, it’s still applicable and still the most accurate forecast for 2016. You shouldn’t be surprised to read the same. You should only be surprised if you were to read something different from me.
“Those who ‘play’ the stock market as if it were a game will lose. Those who respect it as a force of nature will prosper, but only so long as they are humble and patient.” — Jason Zweig