Is it possible to predict movements in the stock market?

Today, I was asked to go on Alberta Primetime, a TV show on access TV to comment about some market predictions from an article published in the Globe and Mail. The article provides some interesting statistics on why the market may be ready for a correction but do we really care?

Pundits, Gurus and experts go to great lengths to try to either try to predict the stock market or they try to at least explain the stock markets with a myriad of theories. I try to read as much as I can and what I have found is there are more theories and explanations than ever preserved by the world wide web.

I thought it would be relevant to share some of my global thoughts on the stock market and why predicting the markets is a real waste of time.

Stock markets go up and stock markets go down

Why do stock markets go up and down? Because the market is a place where buyers and sellers converge. When there are more buyers than sellers, the price increases. When there are more sellers than buyers, the price decreases. So what causes people to buy and sell? I believe it has more to do with emotion than logic. Because emotion is unpredictable, stock market movements will be unpredictable. It’s futile to try to predict where markets are going. They are designed to be unpredictable.

A waste of time

Spending an hour trying to predict the future movement of the stock market is an hour wasted in your life. There are so many better things to do with your time. Now, don’t confuse this with knowledge. I think it’s good to read and learn but don’t think you can predict the markets.

Markets are more volatile than ever

Mark Twain once said “October. This is one of the peculiarly dangerous months to speculate in stocks in. The others are July, January, September, April, November, May, March, June, December, August, and February.” Markets are more volatile than ever simply because of more access to information and more resources to react to that information. Technology allows us to buy and sell as many times as we want, whenever we want while sitting on the toilet from the comforts of our own home.

Perfection does not exist

There is no such thing as perfection when it comes to investing.  Many times, I’ve said that investing is not about perfection but rather about process and probability. The key to success is to develop a process or a plan that attempts to increase your probability of being right more often than wrong (because you will be wrong sometimes) and enhances the probability of making money more often than losing money (because you will lose money from time to time).

Related article: The three Ps of investing

Everything goes in cycles

The stock market just like everything else, runs on cycles. What goes up comes down and what goes down comes up. What goes up the most can come down the most and vice versa. After every bear comes a bull. After every bull comes a bear. After every correction comes a recovery.

Unfortunately for all of us, the stock market is unpredictable and uncontrollable. That’s exactly why it can be so frustrating for so many people. The market can also be a sea of opportunity to make money as long as you employ smart prudent investment strategies. Don’t get caught up in thinking the stock market can be your secret way to get from rags to riches. That kind of speculation is about as risky as the casino or lottery and we know the odds of winning at that game.

Some people will argue that if it’s too hot in the kitchen, then get out but also know the consequence of getting out . . . there’s not much for alternatives. Others seek safety within the market but I think it’s best to find safety outside the market.

Written by Jim Yih

Jim Yih is a Fee Only Advisor, Best Selling Author, and Financial Speaker on wealth, retirement and personal finance. Currently, Jim specializes in putting Financial Education programs into the workplace.For more information you can follow him on Twitter @JimYih or visit his other websites Group Benefits Online and Advisor Think Box.

8 Responses to Is it possible to predict movements in the stock market?

  1. Jim:

    We are in 100 percent agreement that it is a waste of time spending even one hour trying to predict where stock prices are headed this year.

    But even your own article suggests that long-term predictions work. You say: “After every bull comes a bear.” If that’s so, then the odds of getting a good return are much higher in a bear (when prices will soon be going up) than they are in a bull (when prices will soon be going down).

    Getting the odds on your side makes a big difference. Stock returns cannot be predicted with precision even in the long-term and stock returns cannot be predicted in the short term at all. But it is too broad a statement to say that stock returns cannot be predicted. Long-term returns are highly predictable for those willing to take prices into account before buying.

    Or at least so Rob Bennett believes!


  2. You really could not be more wrong. The stock market is absolutely predictable. You stated in your rant that the market revolves around human emotions. Human emotions are based on human nature which hasn’t changed since we “fell out of the trees”. I challenge you to do your research by reading a book or two. I am confident that you will see the error in your words after doing this. Your rant has turned many people off of the opportunities presented by the market everyday. One of these persons could have been one of the millionaires that the stock market makes every day.

    • Hi Bart
      Delighted to see your confident post and comment that market is predictable.
      I am a market student but never come across enlightnment of this sort, however hard i try.
      but its good to know that there is someone who knows how this works.

    • Bart, please cite your sources. Who are these “millionaires that the stock market makes every day”? And please don’t reference Warren Buffett. He does not try to time the markets and discourages anyone from attempting to do so.

      Everyone should be invested in the stock markets under the guidance of an honest investment professional who is focused on long-term goals. This takes time and discipline, not prediction of stock prices.

      You can cite every book and article ever written about stock prediction but the proof is in the pudding. For me, it boils down to the following quotes:

      “I can’t recall ever once having seen the name of a market timer on Forbes’ annual list of the richest people in the world. If it were truly possible to predict corrections, you’d think somebody would have made billions by doing it.” —Peter Lynch

      “It must be apparent to intelligent investors that if anyone possessed the ability to do so [forecast the immediate trend of stock prices] consistently and accurately he would become a billionaire so quickly he would not find it necessary to sell his stock market guesses to the general public.” —David Babson

  3. If you people honestly think that these market predictions are justified by your willingness to do research I think you all may have lost your minds.
    What Jim is saying is that the market is driven by endless counts of emotion and as well as ego. It is ultimately a vegas wasteland without the shiny lights and automated waterfalls.
    You are, in the grand spectrum, gambling, expect with portfolios.
    Human emotions are so subjective, therefore nitpicking at all these elements and trying to derive a prediction is senseless.
    Let the bidding commence!

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