Can You Predict the Stock Market?

The market has certainly been terrifying lately.   But should you have seen it coming? How long will it continue?  Is it going to get worse? And why is the market so volatile?  These are all great questions.  Sadly I don’t know anyone who can answer (but if you want my opinion, click the video below for an in-depth look at what’s happening in the market right now).

Actually, I have a different question for you; can people really predict these kinds of things?  The facts suggest they can’t but that doesn’t stop people from trying.  And even if you did “get it right” this time, your “clairvoyance” may actually cost you a lot of money over the long-term.  I’ll explain that in a bit.

When we try to predict the stock market it forces us to define ourselves; we are either investors or speculators — or something in between.  The type of investor who says they  “see ” a correction coming and changes their investments as a result  is in fact a speculator.  When you say, ” I KNEW IT!” – the reality is, you didn’t.  Maybe you speculated and got it right… but that’s it.  There is nothing wrong with being a speculator but it’s important to call a book by it’s cover.

If you try to forecast how certain events will impact the future as it relates to the stock market you are a speculator.  There are no two ways about it.  The person who could “see it coming”  in 2008 should have “seen it going away” in 2009. Not many people did. If you speculate on the market getting out, you are obliged to speculate on getting back in.  Not many people are consistently good at that.

So this issue forces us to decide what kind of investors we want to be.

Having said this, I will admit that there are “speculators” and then there are “speculators.” Some speculate all the time and others do so less often. Some speculate on large amounts and others on small amounts. But if you base your investments on how you think some current event is going to impact the future, please understand that you are speculating and taking on a lot more risk.

Here are some questions you can ask yourself when you’re thinking of how to predict the stock market:

1. Are you an investor or speculator?

Do you make investments based on current events or based on your long-term goals? Both have pros and cons. Which is the best way to protect your assets?

2. If you consider yourself an investor, don’t ever speculate.

This doesn’t mean you have to invest blindly or buy and hold your positions forever. You can use different strategies that are market-sensitive. That means you invest when the market is strong and refrain from investing when the market is weak. Like everything else, it’s not perfect. But such systems may help you avoid catastrophic results.

3. If you consider yourself a speculator, have realistic expectations.

There will be times when you’ll get it wrong. That goes with the territory. And when you get it wrong it will cost you. If you can’t accept that, don’t speculate.  Many experts say that more money has been lost anticipating the next bear market than has been lost when the market actually fell.

What are your thoughts? Are you an investor or speculator? Do you only speculate when “it’s a sure thing”? How has that worked for you? Can you accept the realities and downsides of being an investor?