Are Market Predictions a Waste of Time?

There was a spread in the Wall Street Journal at the end of 2007 in which a variety of seasoned financial experts were asked where the markets were headed in 2008. The predictions were mostly bullish – Dow 14,000 – Dow 15,000 – Dow 16,000 – true dreamers. A couple of people more accurately predicted flat markets in the face of staggering oil prices and a weak housing market. But nobody–none of the experts–expected a 10% decline in the first quarter alongside a massive credit crisis. I’ve listened to hundreds of bulls and bears make predictions about market direction over the past five years and I keep returning to the same conclusion: these people have no clue where the market is headed.

The prime example of this sustained foolishness is Jim Cramer. I’ve met Jim a few times and he happens to be a very nice guy with a genuine interest in helping people. Regardless, his role as a daily stock picker on Mad Money is impossibly difficult and his track record is really starting to look bad. Jim didn’t predict the 2,000 point drop we experienced late last year into this year. He sat on television when the market hit 14,000 talking about how the rally was real. Then he talked about why we were destined for a correction after the averages already fell. Buy high and sell low Jim? That doesn’t sound right.
But Jim Cramer is just one of many. Countless experts are on television these days making predictions. Some talk about why the recession fears are overblown and how we’ve seen the worst of it. Yet others predict earnings season is going to be weak and continued decreasing home prices will hamper the economy until mid-2009. Who should you listen to? And why do all these experts have such varying opinions?
It doesn’t hurt to listen to what experts have to say. They may provide you with an idea for your portfolio and ultimately help you become a more informed investor. The time to stop listening is when the market predictions come out. Markets are emotional and nobody has a clue when and where the markets are going. Experts may understand the patterns and fundamentals reasons behind market movement–but they don’t ultimately know any better than you do when or if the Dow will reach 15,000.
If any winner were to emerge from the endless steam of market predictions, it’s the financial networks that feature people with opposite opinions all day long. They hook viewers and listeners with their content and get rewarded with advertising dollars. What a racket!
Russell Bailyn
Wealth Manager
Premier Financial Advisors
14 E. 60th Street, #402
New York, NY 10022
P: 212-752-4343 *31
F: 212-752-7673
Securities and certain investment advisory services offered through: First Allied Securities, Inc., a registered Broker/Dealer. Member: FINRA/SIPC. Premier Financial Advisors, Inc. is a Registered Investment Advisor. First Allied Securities & Premier Financial Advisors are not affiliated entities

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