Predicting Future Market Movements

Jan 29, 2016
Author: Scott Hanson

Predicting Future Market Movements

You’ve probably heard people—your neighbor, an old friend, or maybe an “expert” on cable television—brag about how good they are at “timing” the market. Timing the market is the act of trying to predict (and then capitalize upon) future market movements, often by utilizing technical indicators or economic data, or, in some cases, just by counting on intuition.

I put “intuition” in there because my experience has been that many experts use little more than gut instinct to predict future market movements. First, always remember that while those television talking heads get paid to take risks, you don’t. If they end up being right one-in-ten times, you hear about it again and again and their ratings go up. If you follow their advice and end up being right one-in-ten times, you’ll probably go broke.

So here's the thing:  While anyone can get it right now and then, the fact is that markets go through cycles. They go up and they go down. The real estate market goes through cycles. The stock market goes through cycles. Gold goes through cycles. Yet, it’s extremely hard to predict when these cycles will begin, and when these cycles will end. In short, betting on short-term outcomes is not only extraordinarily difficult, monitoring those cycles takes more hours in a day than most of us have at our disposal.

If you’ve ever listened to our radio program:  Hanson McClain’s Money Matters, or you’re a client of our firm, you know that I’m no fan of crystal balls and slick salespeople that pretend they can predict the future. Our philosophy is, and it will always be, that investors should take a long-view approach and avoid jumping in and out of the market.

Seeking investment success? Broken down and simplified, here’s what we at Hanson McClain believe successful investors need to do:

  • Don’t focus on short-term swings in the market.
  • Do focus on how the markets perform over the long term.
  • See market downturns as buying opportunities.
  • Have a long-range investment plan, and then stick with that plan.

It’s human nature (and a core tenet of behavioral finance) to not only fear missing out on the next big thing, but to have a prohibitive fear of loss. Don’t be controlled by your emotions. History shows us that markets rise and fall and recover. This means that staying the course is probably the best way to achieve long-term financial success.

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