Who Should You Trust? Trust The Data
As investors read the daily financial news and listen to their favorite investment gurus on television or the internet, who should they trust? All can agree that the stock market has risen over time at an average rate of about 10% per year and that likely will continue over the long term. Unfortunately, many investors are led to believe that financial pundits who headline on television and the internet have a crystal ball which gives them special insight into the future concerning stock market direction but that is not the case. Let us make one thing clear, no matter who you are or where you were educated you have no ability to guarantee future events in the stock market.
If you read the financial news today, you would find varied predictions about the future of the stock market with some pundits predicting a crash while the next expert predicts a rally and the beginning of a bull market. Getting back to our initial question, who should you trust? The answer is simple, trust the data. Although there are many well educated stock market experts from some of the most prestigious universities around the world, their market knowledge is limited when it comes to short-term or other forecasts. These experts only have the ability to explain in great detail how the markets work and how they could be impacted by certain economic, world, or other events to include actions taken by the Federal Government. Unfortunately, these predictions can be undermined when consumers or investors react emotionally and irrationally to market conditions.
Data, not pundits, give investors the most reliable way to make reasonable forecasts about the future direction of the markets. Historical data on market returns, if examined correctly, provides a great deal of insight about the stock market. The key is to amass sufficient data, which luckily is readily available in the case of historical returns for most major markets. With the right data, investors are better positioned to determine the extent to which the market is overvalued or undervalued, whether we are near a bottom or a top, as well as the likelihood that the market will end the calendar year with returns below a certain percentage. Historical market data provides investors, with 100% accuracy, a complete picture of what happened over time for multiple time periods. Fortunately, history does what pundits cannot, it combines investment and economic fundamentals with investor psychology and provides clear cyclical patterns that can be used to forecast future market events with a lot more consistency than any group of financial experts. Investors who rely heavily on tactical or strategic asset allocation would certainly benefit from using market forecasts that are driven by historical data with a focus on the relevant time horizon specific to the investor.
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