Friday, April 11, 2014

Should We Buy or Sell?

All of our clients are aware (or should be aware) that we are firmly against the notion that investors can profit from market timing.  It is nearly impossible to consistently predict when markets will go up or down and to then successfully act on that prediction.  It is the great myth of Wall Street that professional investors bring some sort of special knowledge of how markets will move in the future.  

I recently read this blog post, which leads with this quote:

"The results are in and they are bad. After tracking 68 experts and 6,582 market forecasts, CXO Advisory Group has concluded that the average market prediction offered by experts has been below 50% accuracy. Flip a coin and your odds for predicting the market are better."

And here is the graph which shows just how bad market guru's have performed:

Pretty remarkable that these so-called market experts did worse than flipping a coin!

Finally, here are a few quotes on the topic of market timing and why it's such a bad idea:

“A decade of results throws cold water on the notion that strategists exhibit any special ability to time the markets.” — The Wall Street Journal

“Let’s say it clearly: No one knows where the market is going — experts or novices, soothsayers or astrologers. That’s the simple truth."— Fortune

“Owners of stocks . . . too often let the capricious and irrational behavior of their fellow owners cause them to behave irrationally, because there is so much chatter about markets, the economy, interest rates, price behavior of stocks, etc., some investors believe it is important to listen to pundits—and, worse yet, important to consider acting upon their comments.” — Warren Buffett