“Since no man knows the future, who can tell him what is to come?”
Ecclesiastes 8:7
A feature I had a lot of fun with during SMI’s early years was “False Profits?” A little pun there, as in “false prophets.” Get it? Anyway, I would point out forecasts that appeared in the financial media and then compare them to the quite different reality that followed. The goal was to illustrate one of the foundational truths of investing (but that runs contrary to the impressions you regularly receive from the investment industry): Nobody knows what the future holds. Nobody.
Finding examples for these articles was simplicity itself. Whenever I read a poll or panel discussion about what experts thought, or an interview with a highly regarded Wall Street money manager, I would add it to my “predictions” file. It quickly became a treasure trove of material. Here, let me show you how easy it was.
On Oct. 27, 1997, the Dow tanked 554 points in response to the worsening economic news from Asia. At that point, the Dow had fallen some 12% in a month, and investors were looking to the best and brightest of Wall Street for guidance. In response, the next day The Wall Street Journal ran an article on the front page of its “Money & Investing” section that opened with this summary:
“Even the optimists aren’t forecasting a quick recovery. And the pessimists say we are entering a bear market that could last for months.”
This was completely wrong. In fact, the selloff was already over. The market never went lower, and the Dow proceeded to gain 30% over the next nine months.
On July 16, 1998, the Dow exceeded 9300 and the Nasdaq passed 2000, both new records. The Wall Street Journal gave this upbeat assessment:
“Investors who have been holding money out of the market, waiting to see whether Asia and a slowing U.S. economy would hold back corporate performance, appear to have taken the recent favorable earnings news as a sign that the worst could be over, at least for now.”
Again, 100% wrong. That very day, a frightening two-month selloff began that took the Dow stocks down 20% and dropped the Russell 2000 index of smaller companies a shocking 33%.
Perhaps “False Profits?” should once again be making a regular appearance. It may be needed to dampen expectations among some SMI readers that we should be doing more to advise them of what lies ahead. Consider this request from one trusting soul: “I want your predictions each month. Even if they are not accurate, it helps to know what a pro is thinking.” No, dear reader, it doesn’t. It would be a case of the blind leading the blind.
At best, predictions are entertaining; at worst, they can cost you a great deal of money as you are drawn away from your long-term plan. We don’t make predictions because to do so gives credence to the idea that investors can profit from the musings (or delusions) of market professionals.
The way to deal with the uncertainty presented by the markets is not to look to the “experts” for their latest up-to-the-minute advice. Rather, enact a long-term plan that takes market uncertainty into account. Our consistent advice, regardless of market conditions, is to: (1) select a mix of stocks and bonds that balances your need for growth and fear of loss, (2) diversify adequately, (3) expect to do well over the next five years, not necessarily the next five months, and (4) get on with your life, trusting God to honor your good-faith efforts to build on a biblically sound financial foundation.
Don’t waste your time and emotional energy on a short-term preoccupation with beating the market. Invest them instead in serving your family and introducing others to the glory and grace of our Savior.
I remember the day in 1998 when Mark McGwire of the St. Louis Cardinals hit his single-season record-breaking home run. It was a touching moment when he rounded the bases and crossed home plate. Smiling from ear to ear, McGwire picked up his young son Matt and lifted him into the sky. After an emotional hug, he then pointed up into the stands at his father, because he didn’t want him to be left out of the celebration. Jesus said, “If I be lifted up, I will draw all men unto me.” What took place in that celebration at home plate should be your goal as well: To hold up the Son and keep looking to the Father.
Thanks to Dave Stone, former lead pastor at Southeast Christian Church in Louisville, Ky., for the Mark McGwire illustration. — AP
