The bulls and bears are out every day, appealing to your greed and fear. Each and every one of them seems to be well reasoned, thoughtful, and convincing. The sad truth is that none of these experts (yes, none!!!) has any idea where the market is going next. Sure, some of them will be right this time and some will be wrong. Trust me, they are making foolish guesses and thinking they are smart.
Let’s pick on Dr. Marc Faber for a moment. He is brilliant and best known for his bearish views as expressed in the Boom, Doom, and Gloom Report. He is way smarter than I will ever hope to be and is always quite persuasive. Most of all, he is a newsmaker. His predictions are exact and often seemingly shocking. His expertise is often corroborated by the market falls he has “correctly predicted”.
As an experiment, I entered “Dr. Marc Faber predicts market crash” in Google. I got 105,000 results in 0.35 seconds! The first 226 results included articles from 2011, 2012, 2013, and 2014. One can assume that if we inspected all the results almost no year would be immune for his crash predictions. Can you guess why he “correctly” predicted other market crashes? Remember, a clock has the right time twice a day even when broken.
Now, we all know that the stock market has a long term upward bias. My question for any investor would be what purpose is served by paying any attention at all to the 105,000 warnings of crashes that are on the internet related to Dr. Faber’s dire predictions? Anyone who has ignored them (or, if you were lucky, never saw them) has seen their account grow and may even have some happy memories in recent years. Anyone who paid close attention is probably suffering from ulcers as well as low account balances.
A simple improvement that would help all investors would be the elimination of the word “crash” entirely from investor vocabulary. There are bear markets, corrections, drawdowns, and rapid declines to be sure. The definition of crash is to break or fall to pieces violently. I suppose a market could crash in a significant and permanent fashion, though it would be a first. That is not really how the word is used by the investing world. Market reality is that any sudden correction is a “crash” and the bears lick their chops and get you to sell your investments and buy something they are hawking. Take a very long look at the history of the stock market on a chart available online. It can take a long time for a market to recover from a slide, but…..there are no signs of the market “falling to pieces”. If the word crash is eliminated from your investing vocabulary, you will sleep better and enjoy life more. Try it.
By Ted Schwartz, CFP