The world didn’t end in the first quarter of 2016
The prognosticators were once again wrong: the world didn’t end in the first quarter of 2016.
In February, I wrote about the bear market we were in and the fact there was little an investor could do about it that would be short-term exploitable.
That doesn’t stop people from trying to do something about it and it doesn’t stop “experts” from making bold and extreme claims. In fact, many supposed experts were prognosticating that the financial world was coming to an end!
For example, we heard the following:
“This crash is going to be bigger than the 2008 economic crisis with markets falling 75%.”
“A collapse is already at our doorstep!”
Taking the “extremists” advice would have been pretty expensive.
FYI, a 20% bear market that has now recovered is not a crisis; it’s a market cycle. It’s normal. It happens a lot. You should expect it.
Also, if you are reading on the Internet or in your paper, or even listening to the radio or TV, about an impending “crisis,” I assure you that information has been baked into the market cake for some time. Crises by their very nature don’t show up after the markets are fully aware of the possibility. No offense to readers but you do not have access to the necessary information to be in front of a crisis. (Neither do I, by the way!)
There’s always going to be a bear market coming, so if these prognosticators keep saying the same thing over and over again eventually they will be right. What’s worse — they’ll claim they told you so! They do this with the hope no one notices how many times they’ve been wrong.
Being early is the same as being wrong. Or another old saying I like: A broken clock is still right twice a day — but the other 86,398 seconds of the day it is not!
So where do we turn?
Remember, the capital markets and the flow funds around the world are the most powerful secular forces on the planet. They are driven by millions of risk-return decisions a day coupled with a world of unknowns that can’t be priced into the market until they happen. No one can navigate this with certainty. No one.
I personally do not follow anyone who makes “absolute predictions.” It’s dangerous and there’s no evidence that listening to these types of confident prognosticators builds wealth; yet there is evidence that listening to these folks breaks down wealth, sometimes irreversibly so.
I follow people who are thoughtfully wishy-washy. A thoughtful, wishy-washy person is someone who is humble enough to understand that capital markets are simply way too powerful and complex for any one person to fully grasp and opine consistently on, yet offers various sensible ways to think about what’s in front of us. Wishy-washy people consider many options and many possibilities with humility. Robert Shiller of Yale is a great example of a sensible, thoughtful, and wishy-washy person, who coincidentally has been very helpful to those people who follow him.
So, instead of spending time reading bold predictions save your financial life with three great books:
- Future Babble: Why Pundits Are Hedgehogs and Foxes Know Best by Daniel Gardner
- The Wisdom of Crowds by James Surowiecki
- Superforecasting: The Art and Science of Prediction by Philip Tetlock and Dan Gardner
As I said in the past, if you have a long-term plan, are broadly diversified, and can adjust your lifestyle where you know you can control it, playing the return chasing game is unnecessary.
Most importantly, you avoid acting on the extreme prognosticator advice, which in the case of the first quarter of 2016 was VERY expensive in deed.
MICHAEL DUBIS is a fee-only CERTIFIED FINANCIAL PLANNER™ and president of Michael A. Dubis Financial Planning, LLC. He also previously served as part-time lecturer at the University of Wisconsin Business School James A. Graaskamp Center for Real Estate. Mike can be reached at firstname.lastname@example.org.
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