Why Stock Market Predictions Don’t Matter

stock market predictions

Stock Market Predictions And The Drive For Certainty

Since we’ve been little kids we’ve wanted to know exactly what the rules are. Why? We want certainty. The reason people love stock market predictions is because they make their brain feel safe… Why? Certainty. And the bigger the prediction.  The End Of The Dollar. $700 Gold. Dow 6,000. The more certain our brains feel.  The human brain needs to feel certainty, especially with the stock market, because the stock market changes its mind every second. And this price change creates uncertainty, which makes stock market predictions addictive. If Porter Stansberry can predict what is going to happen then we can have our certainty back. And yet, even when the price of what you own is moving higher with stability, your brain gets scared. Why? Investment vertigo.

Investment Vertigo

The definition of vertigo is a sensation of whirling or loss of balance associated with looking down from great heights. When the price goes higher than people thought, those people start getting dizzy when they “look down.” They get “investment vertigo” because their brains have to try to make sense of the “pick-of-the-month” newsletters continuing to say, the world is going to end and yet the price goes higher.

To make matters even worse and crazy, when the human brain finally does get certainty, many people’s brains are not satisfied with this stability. And so some investor’s brains create a way to get rid of their own money. All so they can get certainty back. And how do investors get certainty back? They seek out stock market predictions.

Stock Market Predictions Are Not The Answer. But They Sure Feel Like It.

I don’t make predictions. I didn’t know what was going to happen later in the year before I sent an alert out on January 15th 2008 to my clients telling them to get out of the market. I didn’t know what was coming. I just knew from a diagnostic point of view that something had changed. That money was flowing out of the stock market and flowing into US Dollars, Japanese Yen and their respective bond markets. In other words there were dark storm clouds forming in the distance, that I hadn’t seen since I told my clients to get out in 2000. I wasn’t predicting that those dark storm clouds were going to turn into a F5 tornado. I was simply noticing that holding a full deck of stocks might not be what was best for people, regardless of age or self-described risk tolerance.

The European Stock Market… Finally.

I want to diagnose four charts this week. This first chart looks at the European stock market. Here we can see 1.5 years of data below. If I were to diagnose this chart based on the price direction, I’d see a price that is moving from the lower left to the upper right (read: stability). When one-year, two-year and three-year highs are being made, that’s a sign of stability. And the safest place to be in the investment world is on a line of stability. Read that last sentence until you believe it.
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european stock market

The U.S. Stock Market… Still Going. 

Notice the U.S. Stock Market (via the S&P500), it’s price chart is stable. Again, it’s going from lower left to the upper right. Often people get scared when the market reaches new lifetime highs. But new lifetime highs are a sign of stability, not instability. The image doesn’t lie, which of course doesn’t mean there won’t be set backs, I mean corrections. But that image below is an image of stability.

u.s. stock market

The International Stock Market

The chart below is all developed markets in the world except the U.S. When you look at this chart you can see… wait for it… stability. Again when you make diagnoses rather than predictions you can see the stability. We don’t know where this price is going. That would be a prediction. But we do know about Isaac Newton’s first law of motion, which states something in motion will stay in motion until acted upon by equal force in the opposite direction. This means that things can stay in motion longer than we can ever imagine. And the longer in motion something stays, the harder the opposite force needs to be to stop it.

international stock market

Emerging Market’s Chart of Stability

Finally you can see in the chart below that Emerging Markets are also seeing stability. Again, the line moves from the bottom left to the upper right. When you see that, you are seeing stability.

emerging stock market

Stability is Everywhere And Yet Everyone Is Scared. What Gives?

What “pick of the month” newsletter are you reading? Is it Harry Dent? Porter Stansberry? Or a blog like Zerohedge? The investment world only has four main stock market locations on the planet. And they are all showing stability. And yet investment vertigo has never been higher. And so what are people get prescribed for their investment vertigo? . Be conservative. But end up becoming too conservative because they are not actually diagnosing what’s going on. Instead they’re predicting for something that hasn’t happened for 8 or 9 years.

We Could Get a 25% Correction And We’d Still Be Fine.

You might remember there was a 25% correction in 1998 in the US stock market. That’s when the smartest people in the room, all got together and tried to pull down the stock market. A hedge fund by the name of Long Term Capital Investment (LTCM) got it wrong and almost took down the market. The bull market was in its 17th year and the run might have ended but the New York Fed bailed everyone out. Remember the longer something is in motion (in this case 17 years) the bigger the equal but opposite action will have to be. LTCM was simply not big enough. After the 1998 25% correction the stock market continued higher for another 18 months. The point? Diagnose. Don’t. Predict.

If They All Go Up, Does it Really Matter?

You might be thinking that the U.S. stock market, the International developed market, the Emerging Markets, and the European market move higher together most of the time. But you’d be wrong. Check out the price chart below which runs from the end of 2013 to the middle of 2015, about 19 months. The red line is the U.S. stock market while the other lines represent International, Emerging markets, and Europe. So no. the markets do not always move in the same direction. The point: when all four stock market locations on the planet are moving in the same direction, like they are now, That’s stability. You don’t need stock market predictions. But you will need to start diagnosing.

us stock market vs international

Again this isn’t about stock market predictions, it’s about diagnoses. Could we get a 10% correction in the near future? Of course! And we will eventually. Will the market go up forever? Of course not. A correction is coming. But by diagnosing, you start asking yourself the question, “What now?” and not “What if?” Try this on…

What Now that your pick-of-the-month newsletters haven’t helped the past eight years? What Now, that your “long-only” “big-box” adviser has you prepared to take the full hit of the market correction when it does finally arrive? What Now? The market is always correct.

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In Your Corner,

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RC Peck, CFP  


1 Comment

  • Chuck Coleman

    July 5, 2017

    The market giveth, and the market taketh away ….

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