I’ve been behind.
That’s why, this week, I found myself sorting through old papers that somehow still haven’t been looked at from late last year. I’d tucked them into a file folder called “read later” I’d apparently invented in December, popped it up on the shelf, and never looked at it again.
So, it’s now funny to see that on December 23rd the AP headline was Investors Expect Higher Stocks in 2015. As that wordsmith Dr. Phil says,
“How’s that workin’ out for ya now?”
Stocks have bounced all over so far this year (and got CRUSHED last week), and if you were to poll investors today I bet you’d have a much different answer to the question, “Where do you think stocks are headed in 2015.”
In fact, it makes me wonder why investors expected anything in 2015. Don’t we get burned by that every year?
Investors, two years ago, expected the Federal Reserve to begin notching up short term interest rates. Bonds plummeted because of the news….and then nothing happened. Janet Yelin has insinuated that we’d have higher rates coming soon, but current events always turn “sooner” into “later.”
Investors expected emerging markets to be a horror story in 2014. However, this lagging area of the market proved resilient in 2015, as long as you stayed away from betting on specific countries like Russia.
Investors last year expected the market to begin dropping, yet we had another 11% year for stocks (a horrible year for those of us who played contrarians in investment games).
It appears that “expecting” is bad for your portfolio’s health, doesn’t it?
What’s better about this AP headline? The subheader reads, “S&P 500 has more than tripled from its March 2009 low.”
This is where I run into trouble. When I read sub headlines like that juxtaposed against the headline of Investors Expect Higher Stocks….I begin to see irony and think “There’s no way that could be right.”
In fact, plenty of people like me see those types of headlines and begin to bet against the market. I’ve been reading about bearish traders for over two years now, and I’m sure this headline will help create a brand new crop of “It Can’t Go Up Forever” investors.
The problem with thinking the market will turn
If you bet against the market, you’re playing a losing game. Why? Because you don’t have to be right once, you have to be right twice to win.
You have to call when the market will actually fall. Sure, you know the market is going to plummet….so did people two years ago? Are they still hanging on?
In 1998 I met with a guy named Dave who had a massive gold investment. In reply to my question about why, he said that in 1992 he was sure that the Iraqi war would plummet the stock market. When that didn’t happen (and gold prices didn’t rise), he always had a reason to keep it. While the stock market rose BIG TIME in the 1990’s…Dave held on tight to his gold, a contrarian position, which did zippo.
If you guess when it’s going to fall and buy your contrarian investments, then you have to guess AGAIN when it’ll return to it’s normal path. If you don’t, you’ll erode what are sure to be some spectacular short term gains.
Maybe I think you can be right once, but twice? I seriously doubt it.
Here’s a better strategy:
Bet that the market will go up, even if you think it’ll sink in the short run. A bet on the market is a bet that the economy, in some form, will continue to operate at least in a semi-healthy manner.
Dollar cost average into a sinking market. Sure, you could try and call the bottom of the market, but if you instead break up your funds into smaller chunks and just keep buying as it sinks, you’ll spread your risk.
If you’re going to bet at all, as the market sinks bet that it’ll return and up the risk in your portfolio. I tend to prefer NOT to bet at all, but the chance that you’ll be right some time in the future with long term money by betting that it’ll come back is much better than trying to call the bottom.
I love old newspapers. You see a view of the world from a point in time when we didn’t know any of the information we have today. While I love reading about how awesome the market will be in 2015, I think I’ll continue to bet that my ability to call ANYTHING is horrible, at best.
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