March 24, 2020
Lots of people spend lots of time (and make lots of money) telling you what to think about the stock market. Is it overvalued or undervalued? Is this the end of the bull market (a period where stock prices rise?) If not, what “inning” of the bull market are we in?
Do these expert predictions really work? Well, we don’t really know because no one bothers to go back and see if the forecasts were correct or not. Wouldn’t it be great if CNBC had a scrolling text at the bottom of the screen for each guest? “John said the market would drop in 2018 (incorrect). He also said oil would rise in 2019 (correct).”
But they don’t do that; my guess is it wouldn’t look very pretty.
We’re in the middle of a historic market, which just fell faster than it has ever fallen before. Did the experts warn about this? Let’s take a look. Specifically, let’s take a look at February 25th, 2020. That’s one (very long) month ago. I’ve chosen this date with the benefit of hindsight. Take a look:
The graph above shows the closing values of the S&P 500 Total Return Index, which includes dividend payments. The numbers you see won’t align with the S&P 500 Index values you see on just about any other financial web site; that’s because graphs on those sites assume you take your dividends and throw them in the trash can. More on that some other day.
The market had just fallen 3 days in a row, for a total drop of 4.75% or so. It would fall another 3% on February 25th, and then another 28% after that.
But on February 25th, that outcome was uncertain. Coronavirus was spreading in China, but there were only 57 known cases in the United States.
The market was about to fall another 30% in less than a month. Did the experts warn you? Well, here’s someone who didn’t warn you on February 25th:
“This isn’t how the bull market ends” except it ended 12 trading days later. The article itself isn’t as confident as the headline, but the ending is pretty clear: “here’s your chance to get into stocks at better prices while others are panicking.”
Here’s someone else who said on February 25th that the market drop presented an “amazing buying opportunity” in consumer stocks. And he’s an expert— it says so in the article headline!
A third example: Another professional telling people on February 25th to “resist your instinct to flee equities.”
To be fair, some of the advice in the article above is meant to keep you from selling all of your stocks; knowing when to get back in is no easier than knowing when to get out.
And one more. Yes, this is still from February 25th!
The article has some pretty compelling quotes:
The safety trade has become so stretched to the upside that it’s really the expensiveness of bonds and safety that I think should provide a floor for the stock market
I think it’s made stocks relatively attractive
Some experts did tell people not to buy the rally on February 25th. Mohamed El-Erian was one:
February 25th was not a special date. I could have done this with just about any date. In fact, here are some headlines from right now, March 24th. Right now on marketwatch.com I see 1 negative headline:
“This rally has a better-than-even chance of failing”
And 3 positive ones:
“The stock market could be ‘near a bottom’
“No one will regret buying stocks”
“It is ‘dangerous’ for investors to be negative on stocks
And Jim Cramer is still a negative vote, just to even it out a little:
So who do you listen to? No one. Just about everything you see in these articles and on TV is entertainment, not investment advice. Josh Brown is frequently on CNBC, recommending stocks and predicting which way the market is going to go next. But that’s not how he invests his own money!
… almost everything I do is with a long-term bias. I don’t day trade or swing trade, because I’m bad at it and I feel as though those activities are a full-time commitment.
I’m in an all-equity model because I’m relatively young, can bear risk and will not be accessing this capital for at least another 25 years.
Find an investment allocation that you can be comfortable with. One that you’ll be comfortable with whether the market goes up or down. (Long-term it usually goes up!)
Read or watch the financial “experts” only if you find it entertaining. Because that’s all it is: entertainment.