Skip to main content

Sound Advice: December 30, 2020

 Stocks NOT To Buy Now

Of all the silly information regularly offered to investors, the most useless and omnipresent is typically phrased as “10 Stocks to Buy Now”. The latest to come across my desk is from Barron’s, the well-respected (in some quarters) Dow Jones financial weekly that is a sister publication of The Wall Street Journal.  The article, in the December 21st issue, was entitled “10 Timely Stock Picks For 2021.”

Just in case readers got too excited about the list of stocks provided, the article let them know the 10 picks they anointed in December 2019 returned an average of 11%.  In most years, that would be been considered an OK return, but over the same period the S&P 500 index returned 18%.  Barron’s response to the shortfall: Who could have predicted 2020?

 

The reality is that no one can predict the returns for any year.  Indeed, any and all efforts to forecast the short-term future for the investment markets are futile. 

Here’s an excerpt from Jeff Sommer’s article in The New York Times on December 18th:

Clueless About 2020, Wall Street Forecasters Are at It Again for 2021.

If you want to know where the stock market will end up one year from now, I’m sorry — I can’t help with that.

Neither can Wall Street stock market strategists.

The difference is that I don’t try to forecast the stock market’s movements.

Predicting the future is beyond my competence. And it’s not just me. The overwhelming evidence from decades of academic research is that nobody can reliably and accurately forecast what the stock market will do. Short-term forecasts — including predictions of where the market will be one year from now — are a fool’s game.

Yet Wall Street is at it again. Strategists are issuing boatloads of forecasts that purport to reveal precisely where the market will be at the end of the 2021.

These prognosticators are smart people and often have interesting things to say about what has already occurred in the markets and the economy. But as far as predicting the future goes, Wall Street’s record is remarkable for its ineptitude.

I can’t fault anyone for failing to have known in advance exactly how painful and strange 2020 would turn out to be. I didn’t see it either (and if you know of a way of redoing this entire year, please count me in).

But I don’t make forecasts. Wall Street does and it proved, without a shadow of a doubt, that it had no idea of where things were heading.

That may sound grim, yet I, too, remain essentially bullish about the stock market over the long run. Because the market has risen far more frequently than it has fallen, for many decades, I think it is reasonable, if risky, to make long-term bets that it will rise in the future. Underlying that assessment is the assumption that, despite the kinds of tragedies and setbacks we’ve seen this year, the world economy will keep growing and public companies will make profits that will flow into investors’ hands.

That is why I have continued to put money into stocks — as well as bonds — during this time of pandemic, economic dislocation, and social and political struggle. 

Cheers,

N. Russell Wayne, CFP®

 

Comments

Post a Comment

Popular posts from this blog

Sound Advice: February 21, 2024

800-000-0000 That’s 800-000-0000 Again, 800-000-0000 That’s the typical closing for the hard sell commercials that are increasingly polluting media airwaves.   These are the commercials for products or services you rarely need or most definitely should avoid. A substantial number are on behalf of groups of attorneys who would have you believe that you and many others may be entitled to cash compensation for having used or being exposed to some evil item or substance some time in the last few decades.   The pitch always includes a comment that there’s no cost to you unless there is a settlement in your favor. Much of this is rubbish, but when the appeal suggests that there’s nothing to lose, why not take a shot.   And, as you would expect, “advisors” are standing by 24/7 to take your call and help get the process in motion.   What kind of advisor would be available at 3 a.m.? One version of this approach pops up every year between October 15 th and Decemb...
Post a Comment
Read more

Sound Advice: September 21, 2022

The Professional Approach To Stock Selection There are various approaches to stock selection, but the two that predominate are fundamental analysis and technical analysis.  Fundamental analysis is a numbers-based method that evaluates key factors such as income and financial health, including the past, present, and future.  Technical analysis emphasizes movements and formations of stock prices. Fundamental analysis is based on factors that over time have proved to have a meaningful impact on stock price movements.  The optimal picture of corporate profitability is steady growth, both in the past and, prospectively, in the coming years.  Steady growth is rewarded by higher valuations of underlying earning power than those accorded companies with erratic progress. When professionals screen (filter) the data of the broad universe of stocks, they look for companies that move ahead every year, regardless of the prevailing economic conditions.  Although high pas...
Post a Comment
Read more

Sound Advice: July 26, 2023

Is Day Trading a Good Idea? Day trading can be both exciting and potentially profitable, but it also comes with significant risks and challenges. Whether it's a good idea depends on several factors, including your financial situation, risk tolerance, time commitment, and knowledge of the markets. Here are some considerations to keep in mind: Risk and volatility: Day trading involves buying and selling securities within a short time frame, often within the same day. This exposes you to the inherent volatility and risks of the market. Prices can fluctuate rapidly, and unexpected events can have a significant impact on stock prices, making it challenging to consistently make profits. Time commitment: Day trading requires a substantial time commitment. It involves closely monitoring market movements, conducting research, and executing trades. It can be stressful and demanding, as you need to be actively engaged in the market during t...
Post a Comment
Read more