PREDICTING THE FUTURE

The investing gurus who predict the future attract a lot of attention.  For obvious reasons, we all have a strong interest in knowing if the stock market is going to continue going up this year or if it is headed for a big decline in the next several months.  Some of my most savvy customers ask me about my opinions on this topic regularly.

I tell them I don’t know what will happen in the financial markets in the short-term.  No one can predict the short-term direction of financial markets with any consistency. It is just too hard, and the financial markets are extremely irrational in the short-term.  I think they are often disappointed in my answer. 

I do feel very comfortable predicting the long-term direction of financial markets based on history.  All investors should have a long-term horizon.  Including dividends, the S&P 500 should grow by about 10% per year over the next twenty or thirty years. It has done this for the last 20, 30, 50 and 100 years.  It has been amazingly consistent. One does not need to be Nostradamus to make these kinds of easy predictions.

The problem is that it will be a bumpy and volatile ride.  This is why I get so many questions about the short-term outlook for the markets. People are concerned about major stock market declines and the losses they produce. I get it. 

I could attract more attention as an investment strategist and blogger if I were to make big and bold predictions for the markets for this year or next year.  This is called “click bait” in my business. 

I could probably get away with it like the other gurus because nobody holds you accountable for your predictions.  The gurus never talk about the accuracy of their past predictions, and nobody seems to care. 

I don’t do it because I don’ want to waste your time or my time with this kind of nonsense.  These predictions don’t matter.  Because they are mostly wrong, people should not make any changes to their investment strategy as a result.  Selling at the wrong time or buying at the wrong time will cost you a lot of money in the long-term.

The only thing that works in investing is playing the odds and using probabilities.  The stock market (S&P 500) is in a long-term growth mode 85% of the time.  I would say that those are pretty good odds.  As a result, people should have a bias towards being aggressively invested in large cap stock index funds (S&P and Nasdaq).

But the other 15% of the time (bear market collapse) is hugely problematic.  Once every six years or so the S&P 500 drops roughly 40% in an average time frame of about 11 months.  The investing world ties itself up in knots preparing for and dealing with these collapses. And rightly so. They are awful to live through.

But the investing industry’s solution of buying and holding is not a solution at all.  They just don’t have anything better.  The professionals are left with repeating the same old “ride it out” mantra.  They hate it too, which is why the investing professionals also turn to my Beyond Buy & Hold system.

Because these bear market declines appear out of nowhere and for many different reasons, once again none of us can predict these short-term market events.  

But I have proven that you can successfully react to these market meltdowns.  When the risk of a bear market collapse is high, we have shown that you can profit from these big declines by moving out of the stock market.  But you also need to have a way to move back into the stock market at the appropriate time when the probability of a rebound is high.

Playing the odds and probabilities with powerful data and analytical tools works.  It isn’t perfect but it is much better than buying and holding and suffering. 

If you simply buy and hold an S&P 500 index fund, you will get a 10% long-term annual return.  But you will be forced to suffer through those dreaded bear markets.  If you use the industry’s asset allocation approach and use bonds and other assets as a hedge against losses, you will generate a 6.5% long-term annual return AND you will still have to suffer through big losses in bear markets.  Asset allocation doesn’t work.

Our Market Signals investing system should generate average annual returns of over 14% including dividends and interest (12.7% without dividends and interest).  See disclosures.  More importantly, it significantly reduces losses (by 60% to 80%) in bear markets.  I think our customers appreciate the safety and protection provided by our system more than the higher returns.

Learn how our system works by downloading your free PDF here.  And don’t waste your time listening to the gurus who make short-term market predictions.

Be well,

Phil

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Disclaimers The Beyond Buy & Hold newsletter is published and provided for informational and entertainment purposes only. We are not advising, and will not advise you personally, concerning the nature, potential, value, or suitability of any particular security, portfolio of securities, transaction, investment strategy or other matter. Beyond Buy & Hold recommends you consult a licensed or registered professional before making any investment decision.

Investing in the financial products discussed in the Newsletter involves risk. Trading in such securities can result in immediate and substantial losses of the capital invested. Past performance is not necessarily indicative of future results. Actual results will vary widely given a variety of factors such as experience, skill, risk mitigation practices, and market dynamics.