The Eliot Rose Blog
Don’t Listen to the The Talking Heads on TV
Added 02/28/2016 by Jason Siperstein, CFA, CFP
Any time you pick up the paper or turn on a financial news channel, you’ll see very opinionated financial “experts” debating with other “experts” on where they believe the market will head. They will speak with incredible conviction and cite various sources, but at the end of the day their predictions are nothing more than the very nature of a prediction – a guess. In fact, there have been a number of firms that have studied the accuracy of financial pundit predictions over the year and the average accuracy of their predictions was a little worse than a coin toss.
If their prediction inaccuracy isn't enough to steer you away, consider this…Most predictions are based upon trends and are simply extrapolated into the future. Thus, even if you were to act on their predictions and they happened to be correct, you wouldn’t make much money on these types of predictions. The only types of predictions where you can actually make a lot is on divergent predictions. These are the types of predictions that are far from the consensus and are not drawn based upon past trends. However, the chance of this type of prediction being accurate is even less likely than the consensus predictions being accurate. Not to mention, if you act on the divergent opinion and are incorrect, you have the potential to lose a lot.
I am not recommending to put your head in the sand and ignore all that is happening in the world. I think it is important to have world and economic perspective. That being said, no one can predict the future. No one knows what the market is going to do tomorrow or where interest rates are headed. I believe the right way to prepare for the future is to invest in undervalued companies with strong margins of safety and rely on logic, not emotion!