Soothsayers…
I do get tempted from time to time to listen to an investing show even though I follow the Permanent Portfolio. Some shows feature investment advisors who have some neat strategies or ideas I hadn’t considered before. Further, I believe that some investment advisors can be useful for things such as informing you of more tax friendly ways to invest, estate planning, etc. Unfortunately, it seems many investment advisors are in the market predicting business and this type of advice should be ignored.
I was reminded of this today when a well-known market prognosticator was being interviewed and he rattled off all sorts of predictions about stocks, bonds, precious metals, currency exchange rates, etc.
I thought to myself: “How does this guy know these things before they’ve even happened?” Of course he can’t possibly know. He was just good at sounding confident that he knows.
After hearing this, I came inside and dug up a quote about market prognosticators from Harry Browne that I thought you’d enjoy. I found this quote in a great e-Book collection of his newsletter writings called: Investment Strategy in an Uncertain World:
…a prediction implies a certainty, a precision, that doesn’t exist in the real world. It encourages you to place a bet that can pay off only if the prediction turns out to be correct. Such betting is no wiser in the investment world than it would be elsewhere. The strange thing is that most people aren’t concerned with predictions in other areas of life. One sets goals, rather than predictions, for his income, personal relationships, and living conditions — and tries to satisfy his goals. But only a foolish individual places bets on the future — such as making a purchase based on a prediction of a higher income that will pay for it.
And yet, when one enters the investment markets, the first thing he does is to look for a fortune-teller, someone who can predict next year’s gold price. In other areas, the fortune-teller is an object of amusement. But nine out of ten economists and investment advisors attempt to make their reputations as soothsayers — and nine out of ten investors spend their lives trying to find the soothsayer who’s genuine.
Harry Browne’s Special Report – March 2, 1982
As quoted in: Investment Strategy in an Uncertain World
When people ask me what asset X, Y or Z are going to do my answer is always the same: “I don’t know.” This isn’t a very exciting answer, but it’s an honest answer.
My advice is to ignore fortune tellers in the investing world the same way you ignore them in other areas of your life. Instead, build a balanced and diversified portfolio and get out of the market predicting game. Your investment portfolio will be far better off and you’ll be a lot less stressed about your finances.
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Craig,
Good column and timely. What I hear now is the nascent Treasury bubble which will soon turn into a rout. It may, but it may not. Who knows?
It’s interesting reading on Bogleheads about having a “value” tilt on equity investments to generate a better return. The more I read about this, the more I believe Harry Browne may actually have agreed with it simply because the higher volatility would exasperate an up move in the portfolio when it needed it most. I don’t follow this strategy myself (I invest 50% VTI and 50% VEU), but it seems like it would fit into HB’s portfolio as long as one stayed with this strategy and didn’t move to large caps, growth, international, etc. as they saw fit.
Ray