There are probably two things that a person should strive for in life. The first is becoming good, if not a genuine expert, at a particular skill or understanding of a topic. The second is to grow and become old. If you can do both of these, then you might have gained wisdom, knowledge combined with experience.
Often, though, there is a problem gaining true wisdom. The customer goes to the shoemaker to have a pair of shoes made. Upon delivery, the customer is completely dissatisfied with the quality of the workmanship. The shoemaker answers that he has been making shoes for 30 years. The customer responds that it would appear that he has been making the same shoe for 30 years and has not learned anything new or improved his skills during that time.
If you look at the contemporary icons of the stock market, you will note names like Marc Faber, Jack Bogle, Jim Rogers and Bill Gross. Warren Buffett is not a stock-market player. He buys companies through the stock market that just happen to be listed.
Note that Faber is 71, Bogle is 88, Gross has lived 73 years and Rogers will turn 75 in a week. Of course, I completely respect the ages of these men since I would have to call them kuya, not lolo. However, their attitude, concerns and perceptions of the market—while completely valid —are based on 50 years of experience, with the last 10 years being a lower priority.
Marc Faber said this about the United States stock market: “This will be worse since 1987” about the coming crash that is “only months away”. “Investor confidence in the US Federal Reserve is falling”. However, he said this during an interview with a British newspaper on April 14, 2014. The Dow Jones Industrial Average was at 16,450. The index is now 6,300 points, or 38 percent higher at 22,800.
Was Faber’s analysis correct? Absolutely, in that he voiced valid concerns about the “bubble” in tech stock prices, a lack of confidence in the Federal Reserve and slow global economic growth. But his conclusion was not accurate.
CXO Advisory Group is a US-based research service that assesses the accuracy of investment-services companies. In analyzing 6,582 forecasts for the US stock market offered publicly by 68 experts from 1998 through 2012, the average accuracy was 47 percent, with the higher being 68 percent. Faber comes in at 44 percent. Others like Elliot Wave guru Robert Prechter have 21-percent accuracy. Even S&P Outlook, with its army of stock-market experts, can only make accurate stock-market forecasts 48 percent of the time.
The response from most of the gurus that have had their feelings hurt by the CXO reports is, “Yeah, but look how rich I am!”
That is a totally valid response because nobody makes money by predicting the market, but only by trading. However, nobody tells that to new investors. Every stock-market forecast should end with—“Of course, this is all nonsense that has almost nothing to do with the real world, but I have to say something for the press and media”.
You are then faced with two problems following the gurus. Their analysis may be based on 40 years of experience in a world that no longer exists today. Stock- price bubbles do not pop in an environment where banks can borrow your money—through your deposit—at 2-percent or 3-percent interest to buy shares. Further, even the experts know that their general stock-market forecasts will mean absolutely nothing by tomorrow. The market is going to do what it wants to do, and an investor must react properly. It is not a “stock market”; it is a “market of stocks”.
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E-mail me at mangun@gmail.com. Visit my web site at www.mangunonmarkets.com. Follow me on Twitter @mangunonmarkets. PSE stock-market information and technical analysis tools provided by the COL Financial Group Inc.