A False Premise That Leads
to Bad Investment Decisions
Good Morning Relaxing Retirement Member,
Higher than normal daily stock market volatility over the last few weeks, and the confusion and unrest that has followed, has led to more and more Americans “tuning in” to the news, financial websites, and so-called “experts” to gain a better understanding.
Have you ever stopped to think about why we pay so much attention to financial data and “expert” forecasts? After all, as 20th century economist John Kenneth Galbraith once said, “the only function of economic forecasting is to make astrology look respectable!”
This is a very, very important question. Think about it. Many labor under the delusion that if they can somehow figure out what “the economy” is going to do next, they can then anticipate how markets will respond in time for them to make investment decisions and benefit.
A False Premise
Let’s take a moment to break this down intellectually. The premise is, “if we can figure out what ‘the economy’ is going to do next,” i.e. accurately predict the financial decisions and activity of 7.6 billion people.
No one ever has ever been able to accurately predict large scale financial indicators with any level of consistency, especially in the short run. Therefore, any conclusion we draw from this premise will be wrong no matter what it is.
But, for fun, let’s assume that we could anticipate and accurately predict the direction of the economy in the short to intermediate term just once in our investing careers.
We would still have no earthly reason to believe that we had a handle on the trajectory or the timing of the stock market’s next important move as a result of it.
Given this, a long-term investment strategy cannot be crafted and adhered to based on short-term financial forecasts. It sounds appealing and desirable on the surface, but it’s a fantasy.
Think about the last 12 months and the forecasts, interest rate moves, and conflicting “signals” from the Fed and Chairman Jerome Powell. There has been no consistency, and thus no certainty that everyone craves.
I’m not taking an opportunity to bash the Fed. I’m simply pointing out that attempting to “get a handle” on this thing called “the economy” by tuning in daily with the goal of “figuring it all out” so you can exploit and benefit from it is a recipe for major disappointment, and a life of continuous frustration.
Tune It All Out
When you take a step back and think about it rationally, the lesson long-term, goal focused, patient, disciplined investors learn over time is to tune out all financial reporting and current events.
That flies in the face of the message you hear from the dominant media culture, and likely among the majority of those you interact with.
However, what any objective and rationally thinking individual has discovered through painful trial and error is that any study of “the economy” will not tell us what market prices are going to do in the short run.
As Warren Buffet said, “Since the basic game is so favorable, Charlie and I believe it’s a terrible mistake to try and dance in and out of it based upon the turn of tarot cards, the prediction of “experts”, or the ebb and flow of business activity. The risks of being out of the game are huge compared to the risks of being in it.”
The bottom line is that it’s fruitless to agonize over what the stock market is going to do in near future. In the short run, it has always been completely irrelevant to your financial future.
Instead, focus on what you can control which is maintaining your discipline and ownership mindset.
Committed To Your Relaxing Retirement,
The Retirement Coach
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I appreciate the trust you place in us. Thank you!
(The content of this letter does not constitute a tax opinion. Always consult with a competent tax professional service provider for advice on tax matters specific to your situation.)