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Thread: Stocks and "the market"

  1. #1
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    Stocks and "the market"

    Why do people keep predicting what " the market" will do for the next year. I would bet that none of these market predictions for 2019 was for a 30% gain , yet this week Barrons has their annual roundtable in which market experts make their predictions for 2020, why?
    The only good answer to the question : what do you think the market will do this year?, was a response by Michael Price, a billionaire investor, " I have no idea what the market will do, all I do is try to pick good stocks" Brilliant!
    Dennis

  2. #2
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    People who make those predictions make lots of money from them, even more when they convince people to churn their portfolios based on their predictions. There's a lot of money to be made by making these predictions, about 90% of the "financial advisor" business is based on convincing investors that you have knowledge that no one else does or that you are smarter than the other guys.

    The more interesting question is why, in the face of compelling data to the contrary, do people seek out, believe, and pay for such predictions? The number of actively managed mutual funds that consistently outperform their relevant market index is approximately zero, yet such funds dominate the market. (Yes everyone has their anecdote about how some fund tripled in one year when the market went bad, and all of those people seem to assume that they will pick that fund this time rather than the other 10,000 that will tank along with the market.

    I think it comes down to most people being much more interested in and compelled by a good story than by data. Seems to be how humans are wired.

  3. #3
    Roger, you are truly cynical. Unfortunately you are also correct.
    Dave Anderson
    Chester Toolworks LLC
    Chester, NH

  4. #4
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    Just like astrology, the desire to believe outweighs the evidence.

  5. #5
    Quote Originally Posted by roger wiegand View Post
    People who make those predictions make lots of money from them, even more when they convince people to churn their portfolios based on their predictions. There's a lot of money to be made by making these predictions, about 90% of the "financial advisor" business is based on convincing investors that you have knowledge that no one else does or that you are smarter than the other guys.

    The more interesting question is why, in the face of compelling data to the contrary, do people seek out, believe, and pay for such predictions? The number of actively managed mutual funds that consistently outperform their relevant market index is approximately zero, yet such funds dominate the market. (Yes everyone has their anecdote about how some fund tripled in one year when the market went bad, and all of those people seem to assume that they will pick that fund this time rather than the other 10,000 that will tank along with the market.

    I think it comes down to most people being much more interested in and compelled by a good story than by data. Seems to be how humans are wired.
    It's the same thing with gamblers. They also only talk about when they won and never seem to remember their losses. But it's impossible to beat the odds - if you play against the house you're going to lose long term.

    Poker seems to be the exception because it's a game of skill and not just odds (until you run into a better player). But craps, roulette, blackjack, etc. are long term losers.

    Mike
    Go into the world and do well. But more importantly, go into the world and do good.

  6. #6
    All these gains are "paper gains," unless you sell at the high point. They can evaporate in less than minute, kinda like frost when the sun comes up.

  7. #7
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    If the stock goes up and people start to sell it will go down so you have to be one of the first to sell.

  8. #8
    I think predictions are used for stock pickers to get their names out there. Jack Bogle is one of my few hero's!!

  9. #9
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    I always wondered why these so called experts are not billionaires and not having to charge for their advice

  10. #10
    Quote Originally Posted by Jerome Stanek View Post
    I always wondered why these so called experts are not billionaires and not having to charge for their advice
    Yeah, that's a good question: "If you're so smart, why ain't you rich?"

    Mike
    Go into the world and do well. But more importantly, go into the world and do good.

  11. #11
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    Quote Originally Posted by Jerome Stanek View Post
    I always wondered why these so called experts are not billionaires and not having to charge for their advice
    Quote Originally Posted by Mike Henderson View Post
    Yeah, that's a good question: "If you're so smart, why ain't you rich?"

    Mike
    Some of the best experts did become billionaires or at least very wealthy. Most of them had the same prediction on the market, "it will fluctuate." This is often credited to J.P. Morgan > https://quoteinvestigator.com/2013/0...ket-fluctuate/

    It seems a lot of financial thinkers saw this as obvious. Like surfing, it is how you ride the waves.

    J.P. Morgan made a lot of money during the civil war by selling the Army defective rifles > https://www.history.co.uk/biographies/j-p-morgan

    Morgan escapes military service during the Civil War by paying $300 to a substitute to fight for him. During the war he buys five thousand rifles at $3.50 each and sells them on at $22 apiece. The rifles are defective and some shoot off the thumbs of the soldiers firing them. Later, a congressional committee notes this but a federal judge upholds the deal and Morgan is exonerated.
    One test when looking for brokers or advisers for financial purposes is not to look at their home or car, look at the homes and cars of their clients.

    jtk
    "A pessimist sees the difficulty in every opportunity; an optimist sees the opportunity in every difficulty."
    - Sir Winston Churchill (1874-1965)

  12. #12
    It's just funny that the performance of stocks is now more important to those in power than the performance of the actual underlying economy. The stock market now drives economic policy rather than reacting to it. Somethings gotta give.

  13. #13
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    Those predictions are the reason I have stayed out of the market.
    2008 didn't affect us much, except for selling a house on Black lake. Had to cut the price 100k.

    But, I do think another down turn is coming by mid '21. Just my prediction which probably isn't worth crap.

  14. #14
    Quote Originally Posted by Dominik Dudkiewicz View Post
    It's just funny that the performance of stocks is now more important to those in power than the performance of the actual underlying economy. The stock market now drives economic policy rather than reacting to it. Somethings gotta give.
    The stock market is one thing that many people relate to because they have stocks in their 401ks. IMO it is not a great overall indicator because it is driven by emotion in the short term. In the long term it is pretty rational I suppose. A friend who spent his life managing money says most people by and sell at the wrong time driven by greed and fear.

  15. #15
    Quote Originally Posted by Mike Henderson View Post
    It's the same thing with gamblers. They also only talk about when they won and never seem to remember their losses. But it's impossible to beat the odds - if you play against the house you're going to lose long term.

    Poker seems to be the exception because it's a game of skill and not just odds (until you run into a better player). But craps, roulette, blackjack, etc. are long term losers.

    Mike
    Of course the 'markets' are the exact opposite as the math says on average you will make money ion the long term. The longer you stay the more likely you are to make money.

    The question is if you could have made more money elsewhere.

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