Why Stock Market Predictions Are Worthless
Summary
You’ve probably clicked on an article or watched a video predicting how the stock market will perform – but are they ever right? We examine some predictions from top financial institutions like Goldman Sachs, JP Morgan, and Bank of America for 2022 and how they actually turned out and discuss whether it ever makes sense to make investment decisions based on predictions or forecasts.
Tune into this episode to also learn:
● Why stock market predictions are (almost) always wrong
● How recency bias affects financial forecasts
● How using market performance predictions to guide your investing can derail your finances
What we discussed
(00:31) 2022 stock market predictions vs. reality
(04:11) How inflation is affecting 2023 stock market predictions
(05:43) Why you should ignore market projections
(09:25) How stock market predictions can cause permanent damage
3 Things To Remember
- Recency bias makes it very difficult to accurately predict the future. Even the largest financial institutions don’t predict market performance well. For 2022, most financial institutions were at least 25% off.
- A recession can happen, but it doesn’t mean you have to change how you invest. Sure, it’s uncomfortable, but statistics tell us that markets are down one every four years.
- Your emotions will shift between a fear of realizing loss and a fear of missing out. Recent events will skew that shift. Recency bias is one of the strongest biases that come with investing.
Useful Links
Connect with Jason Gabrieli: jgabrieli@HFMadvisors.com | LinkedIn
Connect with Tyler Reedman: LinkedIn
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Memorable moments:
Why we seek stock market predictions:
(05:14) “When we don’t fully understand something or we don’t fully have a feeling like we can handle this on our own, we look for someone who has it all figured out. It’s part of our biology, it’s part of our physiology, and the way our brains work. We want to anchor to someone that has it all figured out.”
(07:55) “It’s that constant battle between the fear of realizing loss and the fear of missing out, and it shifts between which one is stronger in our lives.”
Why ignore stock market predictions:
(06:13) “ no matter what you’re watching on the news or reading online, you have to remember whoever wrote that piece, whoever’s hosting that show or putting on that podcast or whatever, they don’t know your personal situation. They don’t know where your goals are for your money. They don’t know what your time horizons are for your investments. They have no idea. They’re just putting information out there trying to get eyeballs.”
(07:19) “Statistics tell us the market’s gonna be down 1 every 4 years, so you just have to be willing to stay in it and let it do its thing.”
(09:05) “When somebody goes on the news or writes an article or puts out a tweet and says that they have some prediction about what’s gonna happen in the future, you have to realize those people are in the business of making predictions. So they’re just gonna keep making predictions forever. They have no real loss. Their followers eat that stuff up. They just grow. By continually putting out these forecasts, whether they come true or not”
(12:20) “And one of the things we always remind people is that there are constantly thousands of people making predictions and forecasts. And a lot of them are really well educated, smart people that get paid lots of money at these investment banks and financial institutions to make these calls. And occasionally, they do get it right, but you have to remember, it’s not because they’re clairvoyant and can see the future – it’s because there are thousands of people making calls and the law of large numbers tells us that some of them are gonna get it right occasionally.”
Investing is not easy:
(11:24) “You only hear about the people that made a lot of money. Rarely are your friends or family or other investors going to publicize their major losses. So when all you do is hear about the big wins and not about the losses, it’s easy to get jaded by the fact that it’s easy because it’s not.”
(11:43) “The moral of the story is, be boring with the bulk of your investments. We always tell people who are really interested in this stuff and like doing their own research, it’s okay to do it with a small percentage of your net worth on the side to have that little release valve. But when you’re doing it with a big piece of the pie it’s a dangerous game.
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HFM Investment Advisors, LLC is a registered investment adviser. All statements and opinions expressed are based upon information considered reliable although it should not be relied upon as such. Any statements or opinions are subject to change without notice. Information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies. All investments involve risk and are not guaranteed. Information expressed does not take into account your specific situation or objectives and is not intended as a recommendation appropriate for any individual. Listeners are encouraged to seek advice from a qualified tax, legal, or investment advisor to determine whether any information presented may be suitable for their specific situation. Past performance is not indicative of future performance.