Relying on stock predictions today to forecast future market trends is likely to cost you money. Instead, focus on share value and using our three-part investing philosophy to profit
We think it’s a mistake to let stock predictions today guide your investments, but especially so at times like now, when new ideas and differences of opinion are continually streaming into the markets. They make more choices available to you if you are trying to create or update a prediction. This is hard on investors who focus on predictions. When more predictions are floating around, predictions fans have more ways to guess wrong.
The best way around this problem is to quit making predictions. Forget about trying to pinpoint future events or developments. Everybody who tries often enough will wind up making some good guesses. However, no one can foresee the future.
Instead, take a close look at what we know about the current investment situation. Then, try to spot investments that seem to offer attractive opportunities under a variety of future conditions.
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No one can consistently make stock predictions today—or any other time
In investing, it pays to avoid relying on stock market predictions. Successful predictions can pay off enormously, of course. But nobody can consistently or even frequently predict the future in individual stocks or the market. The more your investment success depends on predictions, the greater the risk you face.
On the other hand, it’s possible to assess investment conditions in a general sense. That way you may recognize when it’s a good time to buy stocks, if you can afford to hold them for the next couple of years or longer. If you do most of your buying in times like that, you’ll wind up making a lot of money over the course of your investing career.
Keep a long-term view in mind when you are considering stock predictions today and “a good time to buy”
Mind you, “a good time to buy” is an opinion on a long-term probability. It doesn’t mean the market will go up right away. For that matter, you may buy just prior to one of the market’s occasional downturns. You have to accept this risk if you want to profit from the stock market’s ability to turn middle-income people into well-off retirees over the course of a few decades.
The funny thing is that many people hurt their prospects by going at it backwards. Instead of looking for good times to buy, which are relatively plentiful, they fixate on avoiding the market’s relatively rare downturns. They try to do that by hunting for reasons to stay out of the market.
They want to invest in stocks. They believe in the market’s long-term growth potential. But they dread the thought of buying just prior to a downturn. So, if they see anything that they fear might provoke a market setback, they hold off on buying until the risk has passed.
Relying on investment forecasting or stock predictions today can cost you money
When investors base buy and sell decisions on a short-term stock market forecast, they often experience notably poor investment results, or even lose money. This may come as a shock to them—that their predictions didn’t come true. It may have seemed to them that market trends, up or down, are easy to foresee. But in fact, nobody consistently foresees these trends. That’s why most investors hurt their returns if they let short-term stock market forecasts have much of an impact on their investment decisions.
That’s despite the fact that many investors may have guessed right about a coming trend at one time or another. Maybe they bought just prior to a big upswing, or sold in advance of a major slump. In the long run, however, these experiences may wind up costing them money. They may bet twice as heavily on the next trend they foresee, with more volatile stocks, only to discover their forecast was 100% wrong.
Market corrections are hardest on low-quality or speculative stocks
A speculative stock is a higher-risk, more aggressive stock with uncertain prospects. Speculative stocks may offer significant returns to investors—but they will also have risk to match. The odds are against you when you invest in speculative stocks and companies that are not yet making money. Some if not many of these companies will never make any money.
When a market correction comes, it’s likely to be particularly hard on low-quality or speculative investments. That’s because during those times many well-established stocks are downright cheap in relation to their earnings and the dividends, compared to bonds and other fixed return investments. In contrast, many speculative stocks may appear expensive at current prices, in view of the financial performance you can reasonably expect for them.
In a stock market correction, investors tend to sell low-quality stuff and move their money into higher-quality investments. Either way, it is always a good time to reduce or eliminate your most speculative exposure. We don’t advise you to sell anything out of a portfolio of well-established companies because we believe a balanced portfolio of high-quality stocks will produce above-average gains over time.
Use our three-part Successful Investor approach to make better stock picks while also avoiding stock predictions today
Hold high-quality, mostly dividend-paying stocks.
Spread your money out across most if not all of the five main economic sectors: Manufacturing & Industry, Resources & Commodities, Consumer, Finance and Utilities.
Downplay or stay out of stocks in the broker/media limelight.
Why do you think people believe that they can predict what happens in the stock market?
Have you acted recently on any stock market predictions? What results did you get from those predictions?
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