If you're from Kansas like me, you know that the weather is impossible to predict. When you tune into your local weather channel, you understand that you’re getting a rough idea of what the days ahead might hold. But you don’t take their word for it. Truth be told, I'm incredibly envious of the meteorologists in Kansas. Why? Because nobody expects them to have all of the answers.
As a financial advisor, I'm asked all the time - Hey, how are the markets looking? Where do you think the markets will be going in the coming year? So when is this market going to drop? You get the point.
Unlike meteorologists predicting the weather in Kansas, these people actually expect me to know the answer. Even more, when I'm wrong about market predictions, they tend to get angry.
You Can’t Predict What’s Next
The fact that some people genuinely believe that anybody can accurately predict the direction of the stock market is inherently flawed. Even the most seasoned investors and financial professionals are often caught off guard by an unexpected market shift. In fact, I’d go so far as to say that...
The only thing that is absolutely certain about the stock market is that you can’t be certain about what it’s going to do!
That being said, there are countless so-called “gurus” out there who will tell you something else entirely. They’ll try and sell you on their ability to always predict what’s coming next. It’s tempting to believe these people. We all want a get-rich-quick fix that actually works. But if these “experts” really had a system that worked 100% of the time, don’t you think they would have cashed out making millions and laying on the beach somewhere? They wouldn’t have time to write endless spammy e-mails and blog posts about their strategy.
Even When You’re “Right” - You’re Probably Not
This is going to burst your bubble - and I apologize in advance. Even when you make an excellent investment decision and it pays off, yours (or your guru’s) expertise wasn’t what led you to fame and fortune. In fact, there are endless studies that show that the majority of stock experts’ predictions are wrong - and that there are no solid predictors of a stock’s performance available.
So why do we take the credit when something goes right? It’s in our nature. When a prediction turns out to be right, our brains make the assumption that the person who made the prediction is inherently right. This is a psychological phenomenon called Hindsight Bias. Hindsight Bias says that everything our brain processes in hindsight seems very clear. So, if someone were to make a winning stock market prediction, we’d assume that they must’ve known what was going to happen when, in fact, they were just lucky.
Financial advisors or experts who are looking to con people into paying them to predict the market as some kind of get-rich-quick scheme are scam artists. Unfortunately, our brains are setting us up to believe them. If these experts make one correct prediction, we assume that they knew how to predict the market. We assume that all of their other predictions are correct.
This phenomenon isn’t something to be embarrassed about. It’s completely normal to crave a simple solution to financial problems. The people who should be embarrassed are the ones who try to con hard working investors to buy into their “prediction” capabilities. I’m here to tell you:
Anyone who says they can 'beat the market' or guarantees a quick-win method with your money is up to no good - and you should avoid them.
What Should You Do Instead?
First, it never hurts to be informed. Even investors who are legitimately seasoned experts in the field, like Warren Buffett, have touted the benefits of passive investing (that's why I love ETF’s)...because they work.
Investing is a patience game, not a stock-picking game.
Even though passive investing and long-term strategies tend to be more boring than taking risks with big hedge funds or high-growth stocks, they’re less risky and often more financially beneficial.
Once you’ve done some reading on investing, you’re likely to find that there are countless articles about how we’re currently in the second longest bull market in history. Many of these articles say this with a sense of panic. They’re encouraging investors to make risky decisions in case we’re faced with a market crash comparable to the Great Recession. This is, in part, because the media is designed to entertain - not inform. They’re not encouraging you to do the right things, just the exciting things.
The key is that making these “quick buck” decisions isn’t investing - it’s gambling. Your portfolio shouldn’t be dependent on which direction the stock market is going to move in the short-term. It isn’t designed to work that way.
Instead of making an investment decision that’s rooted in fear, invest for the long term and be patient. Successful investors recognize that investing is about probabilities, not sure-thing predictions. This is also why it’s smart to focus on what you can control, not what you (or someone else) pretends to predict.
What Can You Control?
Focusing on the aspects of your financial life that you can control is the only way to solidify a “sure thing” financial strategy. Admittedly, what you can control isn’t always glamorous. You can control having a well-diversified portfolio. You can control whether or not your portfolio is allocated correctly and aligned with your risk tolerance. You can control choosing low-cost investments, like ETFs. Most importantly, you can control your own knowledge and desire to learn more.
Knowing what you own and why you own it is often the first step to controlling your finances. From there you can determine your net worth, set realistic goals and expectations, and organize your portfolio accordingly. Playing the long game isn’t always a wild ride - but it’s not suppose to be. It’s suppose to help you get on the path to financial success so that you’re well taken care of in both the short and long term.
Do you want help setting goals and creating strategies that will actually help you achieve them? I won’t ever promise to be able to predict the next big stock (or the weather in Kansas), but I can help you create the financial life that supports your goals and aspirations. Give me a call at (785) 256-9150 or schedule your FREE initial consultation here.
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Desmond Henry is a fee-only CERTIFIED FINANCIAL PLANNER™ professional and founder of Afflora Financial Life Planning in Topeka, Kansas. He helps the retiring/retired plan their finances and invest their money. CLICK HERE to learn more.