Any time there are big market moves in the stock market, the talking heads come out and always confidently proclaim things as if they have a crystal ball. The recent stock market dip that happened on December 24th, 2018 brought them out as usual. “This isn’t the bottom. There’s another 10 to 15 percent left to fall.”
When it comes to investing in the stock market, many people turn to so-called “investment experts” for guidance. However, these experts often make bold predictions during significant market fluctuations, claiming to know exactly where the market is headed. For example, after the stock market dip on December 24, 2018, many experts confidently stated, “This isn’t the bottom. There’s another 10 to 15 percent left to fall.” But what is this confidence based on?
The Fallacy of Expert Predictions
The reality is that predicting the stock market with precision is nearly impossible. As someone who has been investing for over 23 years, I can confidently say that many variables influence a company’s stock price at any given moment. Here are just a few factors to consider:
- Earnings Reports: Recent and expected earnings play a crucial role in stock valuation.
- Company News: Rumors about key personnel, like a vice president’s health, can impact investor sentiment.
- Competition: Advances in technology by competitors can affect a company’s market position.
- Market Trends: Stocks often move in tandem with overall market trends. When the market declines, individual stocks may also suffer, regardless of their performance.
Additionally, external factors such as interest rates and economic indicators can shift investor behavior. For instance, if treasury rates become more attractive, investors might pull money from stocks and invest in safer options.
The Challenge of Future Predictions
The most challenging aspect of investing is predicting future events. You cannot foresee the outcomes of trade wars or political decisions that might influence the market. For example, a single tweet from a prominent figure can lead to significant market swings.Investment experts often phrase their predictions carefully to allow for flexibility. This way, if their forecasts are incorrect, they can avoid looking foolish.
A Case in Point: Market Rebounds
On December 27th, 2018, the stock market rebounded sharply, with the S&P 500 climbing nearly 5% in one day. While this was great news for investors, it raised further questions about future performance. What will happen tomorrow? The honest answer is: no one knows.Investors who were anxious about losses may decide to sell after a brief uptick in prices. Conversely, some may feel encouraged by the rebound and choose to buy more shares. The unpredictability of the market means anything can happen.
Embracing DIY Investing
As an investor, remember that when you buy stocks, you are purchasing ownership in companies that strive to generate profits daily. While it can be challenging to consistently identify winning stocks, one effective strategy is to invest in index funds. This approach allows you to own a diverse range of companies while minimizing risk through diversification.If you’re interested in DIY investing without incurring high fees, consider using robo-advisors. These platforms automate your investment process and allow you to build a diverse portfolio easily. I’m an affiliate of M1 Finance, which offers this type of technology without any fees. If you open an account through my link, you’ll receive a $10 credit—and I will too!
Indexing Wins
While investment experts may provide insights into stock market trends, their predictions should be taken with caution. The stock market is influenced by countless variables that are often unpredictable. Embracing DIY investing through strategies like index funds and utilizing robo-advisors can empower you to take control of your financial future without relying solely on expert opinions. By understanding the complexities of the stock market and adopting a proactive approach to investing, you can navigate your financial journey with confidence..