Since 2008, extreme stock market predictions have become big business. Falling for these fear-filled forecasts can be dangerous to your financial health. Please, use caution when listening to them.
Last week, a client sent me one of the extreme predictions he’d received from a so-called research firm whose mailing list he’d been on for years. He wanted to know if I thought the guy was on to something or “just nuts.” The fact that my client called me told me he already had doubts.
Over years of my client receiving numerous emails and videos from this firm and others, most contained comments and warnings like this:
- I predicted the past crisis and no one believed me!
- We are in a dangerous and precarious place in our country!
- Federal and local government will close down!
- Martial law will be enforced by the U.S. Military!
- Banks will not open!
- Near-complete shut-down of the U.S. economy!
- Your savings will be wiped out!
Okay, you get the picture.
This isn’t the first time I’ve been asked to review such stock market predictions. Most aren’t so extreme, but they all hold common threads. They:
- say they were right in the past, but people didn’t listen
- say we are in a dangerous state now
- make extreme stock market predictions that are “possible”
- tell you it will have a major impact on you
- tell you they’ve found a way for you to protect yourself
- ask you to sign up
If you want to invest wisely, it would be wise to ignore most stock market predictions (especially the extreme ones). In the last 24 years I’ve read countless predictions (and even fallen for a few) from the mundane to the extreme, and I’ve found four clear reasons why you should ignore them.
- They are almost always wrong. The reason is that extreme outcomes, by their nature, are outliers. They rarely happen and if they do, the odds of predicting them are infinitely small.
- Timing is everything. It’s not enough to be right, you have to have the timing right, too. I remember early on in my career, around 1990, there was a gentleman that was convinced that the technology boom was going to end. As a result he altered his market investment strategy to bet against technology companies. He was correct in his stock market prediction. The problem was that he had lost all his money long before technology companies crashed in 2000.
- Predictions are a sales tool–especially in investing. Investing for your future is hard. There is no certainty of the result and that’s uncomfortable, so it’s natural for us to look for unique insights. Stock market predictions satisfy that need, so we eat them up. The more extreme the prediction, the more likely you are being sold a service or an investment.
- The future is fundamentally unknowable. There, I just identified the elephant in the room. Nobody can predict the future. Paying attention to stock market predictions, forecasts, et cetera, is believing that someone can. That’s bad strategy.
My counsel would be to accept that the future is fundamentally unknowable, embrace it and begin to focus on ways to manage through the uncertainty. It took more than half of my career to understand and accept this. Do this, and you have taken the first step to building a framework to Invest Wisely.
What’s the craziest (market or otherwise) prediction you’ve seen marketed?
Let me know below or Tweet to @roger_whitney