‘What do I do? Simply stated - I am an expert on markets and advise investors when, where and how to invest their money. That’s correct - I’m an expert.’ Impressive but is it possible? An investor is per definition a person who allocates capital based on expectations of financial return. Often investors will rely on expert advice from so-called financial gurus known to predict and even forecast the future. Occasionally, investors are experts themselves. We hang our coats on predictions but how certain is prognostication of the future?
Knowing that the market will be affected by numerous political, economic and socio-economic factors makes it difficult to predict with precision. What supernatural skills does one possess that the rest of us don’t? In social science we do not tell the future. We do however apply a range of different methodologies in order to understand the world around us. That’s as good as it gets. Knowing the market does not mean knowing the day of tomorrow. Rather knowing the market only one thing is certain – it fluctuates and you don’t know when, where and why until it’s too late. That’s probably why the word ‘uncertainty’ is frequently used by experts as well as investors.
In an article published in Bloomberg View late last year, Barry Ritgoltz – well-known for his critical observance of capital markets – pointed out that not one single investor foresaw a collapse in crude oil prices at the start of 2015 http://goo.gl/KJz8Ck. "… the markets prove that nobody knows nuthin - In fact, we can probably predict the weather with greater certainty than the market. “Markets are laughing” Ritzholtz writes. He might have a point. In the meantime, many cry especially those who cannot afford to loose money through failed investments advised by prognosticating experts and investors.
Situational awareness is easier than forecasting. Inhabiting the combination of both skills is extremely rare according to Ritholtz. In life we deal with probabilities not certainties and so being aware is as wise as we get. Forecasting the market would be the same as claiming to know the future. It falls of its own absurdity, so much so that some even would label those who do so ‘charlatans’. Let’s conclude with sound advice from one the world’s leading investors, Warren Buffet: “Stop trying to predict the direction of the stock market, the economy, interest rates, or elections.” and “Unless you can watch your stock holding decline by 50% without becoming panic-stricken, you should not be in the stock market.” Investing is not for the faint hearted or the desperate, it requires patience, research, time and awareness.