Market forecasters capitalize on our desire to know the unknowable.


Tim Maurer, Director of Personal Finance, The BAM Alliance

Just for fun, Google the words “market pullback.” There are over 2.2 million results–most of them market predictions–and the first page of results is dominated by calls for an imminent market reversal that the simple desk calendar has already proven false.

However, despite their worthlessness, market predictions remain as predictable as market opens and closes. (And I predict no end in sight.)

But why?

First, there’s a clear profit motive. Apparent urgency leads to activity, and activity is still how most of the financial services industry makes its money.

“Bullish predictions encourage investors to pour fresh money into the markets, helping asset management companies to enjoy rising profits,” the New York Times reported, noting that the Wall Street forecaster’s consensus since 2000 has averaged a 9.5% increase each year. They accidentally got it (almost) right in 2016, but in 2008, the consensus prognostication missed the mark by 49 percentage points (an outcome that makes your local weatherman seem like a harbinger of accuracy)!

But not everyone’s positive either. My colleague and the co-author of the new book “Your Complete Guide To Factor-Based Investing,” Larry Swedroe, analyzed Marc Faber’s perpetually cataclysmic proclamations and rendered the good doctor “without a clue.”


But perhaps more surprising, despite the persistent inadequacy of market forecasts, there’s apparently a demand for such soothsaying. Market forecasters capitalize on our unquenchable desire to know the unknowable. “This irrational behavior is caused by an all-too-human need to believe that there is someone who can protect us from bad things happening,” says Swedroe.

Further, “Many individuals believe they are above average in their knowledge, overall judgments, and expertise about all types of money matters,” says Victor Ricciardi, Finance Professor at Goucher College and co-editor of the book Investor Behavior: The Psychology of Financial Planning and Investing.”

The result is that, however un-newsworthy, even venerable publications still print the crap.

What solace can I offer?

On a cosmic continuum, there absolutely is an “imminent” market collapse coming. You can’t predict it, but you can (and should) expect it. And compared even to the relative microcosm of market history, another raging bull market is likely to follow close on its heels.

The rational choice in optimal portfolio structuring, therefore, is to create a portfolio that isn’t designed solely to capitalize on the next market meltdown or spike–but to accommodate both scenarios and everything in between, with balance.

The antidote, therefore, for market hysteria is informed apathy.

Instead of acting on–or even fretting over–a single market prognostication, acknowledge that no one has demonstrated an ability to predict accurately. You’ll be in good company. Warren Buffett, in his recent letter to shareholders, gave this counsel: “[T]he years ahead will occasionally deliver major market declines–even panics–that will affect virtually all stocks. No one can tell you when these traumas will occur.”

And what does he say about those who attempt to predict? “[H]eaven help them if they act on the nonsense they peddle.”

Please recognize this proactive apathy means you likely won’t have sufficient fodder for the watercooler or cocktail party when others are regaling the group with their isolated investment wins and self-loathing losses. But that’s OK, because portfolio volatility isn’t supposed to be the most interesting thing in your life. Your portfolio is better served to simply support the most interesting things in life.

This commentary originally appeared March 18 on

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© 2017, The BAM ALLIANCE

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