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There Is Only One Person Who Knows Where the Market Is Going

Larry Swedroe Sep 15, 2015

I also discussed the importance of integrating a well-constructed investment plan into a comprehensive estate, tax and risk management (insurance of all types) plan. And finally, I discussed the need for maintaining the discipline required to ignore all market and economic forecasts made in the financial media and by Wall Street, because all-to-often they lead investors to abandon their long-term plans.

Ignore All Forecasts

For those interested in this subject, I highly recommend the books “Expert Political Judgment” by Philip Tetlock and “The Fortune Sellers” by William Sherden. In support of the academic findings on forecasts, I provided several quotations such as these:

  • William Sherden: “Despite recent innovations in information technology and decades of academic research, successful stock market prediction has remained an elusive goal…Overall, we have not made progress in predicting the stock market, but this has not stopped the investment business from continuing the quest, and making $100 billion annually doing so.”
  • John Kenneth Galbraith: “We have two classes of forecasters: Those who don’t know — and those who don’t know they don’t know.”
  • Michael Evans, founder of Chase Econometrics: “The problem with macro [economic] forecasting is that no one can do it.”
  • Steve Forbes, quoting his grandfather, who founded Forbes magazine: “You make more money selling the advice than following it.”
  • Benjamin Graham: “If I have noticed anything over these 60 years on Wall Street, it is that people do not succeed in forecasting what’s going to happen to the stock market.”

I also added that I had personally heard Warren Buffett state that he had not even looked at a macroeconomic forecast in at least 25 years.

I have also learned this important lesson. No matter how much we would like to believe otherwise, there’s only one person who knows where the economy and the market are headed — and if I ask him, at least in this lifetime, I won’t get an answer. And in the next one, it won’t matter anyway.

Advice from Buffett

And, in conclusion, he also offered this: “We have long felt that the only value of stock forecasters is to make fortune-tellers look good. Even now, Charlie (Munger) and I continue to believe that short-term market forecasts are poison and should be kept locked up in a safe place, away from children and also from grown-ups who behave in the market like children.”

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