The Money Mustache Community
Learning, Sharing, and Teaching => Investor Alley => Topic started by: dungoofed on December 21, 2014, 06:46:06 PM
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http://www.bloombergview.com/articles/2014-12-19/think-youre-smart-markets-are-laughing
Nothing new for most of us here, Bloomberg columnist Barry Ritholtz takes aim at everyone who thinks they are smart enough to make predictions for 2015. You have been warned...
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Only because there's too many clowns out there.
There are a couple barometers one can use to make an educated forecast for the year. A couple easy ones:
1) market volume. When Market volumes spike in a year compared to previous, you're likely seeing the rotation to bear markets.
2) If the market ends green in January, there is a 90% chance the year will end up.
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Only because there's too many clowns out there.
How are your predictions better than anyone else's?
2) If the market ends green in January, there is a 90% chance the year will end up.
This doesn't seem any more useful than the basic historic observation that the market tends to go up.
I looked at S&P500 (as a substitute for "the market"), and it ended up in 71% of years from 1928-2013.
It's no surprise that if you wait out January and then select only the years in which the market had a head-start (i.e. was up at the end of January rather than down), that you'd increase the percentage of "up" results from 71% to something higher. Even better if you waited until Feb or March, I'd imagine.
Though you may be correct, it just doesn't seem useful or interesting. It's just "the market tends to go up" restated with some obfuscation.
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It's just using statistical info to make informed decisions. I'm no advocate of market timing or in and out behavior. For the vast majority people are not suited for that behavior. My long portfolio beat the market by > 30%, with basically zero turnover for likely > a year.
The people in these articles are not people to be listening to. Usually if someone's selling their formula, the formula is broken. If I see a decline in the market coming, the last thing I would do is publish it. The most id discuss is ways to make an educated guess (like the sell in May and go away. But that one is bad, 70% probability).
Even if I saw a fall, I wouldnt liquidate. I'd look to raise some extra cash, but there's long positions I'm fine holding through downturns.