Financially Speaking Podcast

Get Real

Published on October 17, 2011

Investing isn’t easy and superior investing is even harder.  It’s easy to be average, but most investors want more than average – and they want it for a long time.  Many investment professionals tell their clients that they know how to get superior investment results, consistently for many years.  They know how to deliver superior investment results.  They know what the future holds.

The investing world has created two opposing belief systems: the “I KNOW” and the “I DO NOT KNOW” schools of thought.  The “I KNOWERS” decide what the economy is going to do, figure out the impact of interest rate changes, choose the industries which will perform best in that environment, determine the best companies in those industries, and then assemble an investment portfolio which will definitely outperform the competition.  Of course, they have their black box, secret strategy, crystal ball, charts and or tea leaves that enable this extraordinary skill. 

The “I DON’T KNOWERS” believe it is impossible for anyone to know much about a vast number of things; that it is especially difficult to outperform by making superior guesses about the direction of the economy and the markets.   They simply can’t and will not predict the future.

During 2010, the hot financial buzz was the “Hindenburg Omen” which was predicting a market meltdown in September.  Jim Miekka created the Omen in 1995 as a way to predict big market downturns by developing a formula that uses stock market data.  The Hindenburg, of course, was the famous German airship which crashed in 1937 in New Jersey.   He used the term Hindenburg only because the word ‘Titanic’ was already taken.   Mr. Miekka, a former physics teacher, not surprisingly, sells a newsletter.   Other technical indicators, with names like "The Death Cross" and "The Bearish Abandoned Baby" have been attracted attention in the summer of 2010.   Mr. Miekka is an “I KNOWER”.

Really? 

Some of us actually believe this stuff – and then actually act upon it.  Why?  During volatile times in the market, it’s our nature to look for answers.  We will grasp any logic that gives comfort or gives direction.  We feel the need to do something in the face of losing our wealth.  But it is those investors who get whipsawed by market changes, because no one can successfully time the market.  Actually the Hindenburg Omen has worked only 25% of the time.   But some investors are just not listening.

Everyone can have an opinion about the future.  The “I KNOWERS” appeal to our emotions and our need to do something.  It is easy to listen to them because they give us answers.  In my opinion, those answers are often wrong. 

I don’t know what the future holds.  I don’t think anyone knows.  What I do know is that investing is, has and always will be conducted in an environment of uncertainty.  It is the reality of investing.

By the way, the stock market was up about 10% during September, 2010.
 

Tags: investment predictions;, investment beliefs; reality of investing

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