Will We Know When The Market Turns?

“New study reveals that 90% of all statistics confuse 80% of the people 70% of the time!”

As investors we are constantly watching the markets for any sign of a change in the trend. The problem is that we are constantly bombarded with data that points us in several different directions at once. It is rare for someone to be truly objective since we all have our opinions and our own way of looking at things. As a result we tend to interpret data to fit what we already believe.

Compounding the problem is the bias shown by various media outlets. Even if a particular media source strives to be objective, they are subject to the prejudice of the individual writers and reporters who slant stories to fit their own belief systems. Sometimes there is a conscious effort to distort things to their left or right leaning viewpoint, while other times it is an unconscious desire to have their interpretation of the facts proven to be correct.

Another factor is the Government’s spin on things. Keeping the public confidence as high as possible is the goal of any President, whoever it may be. As a result they will have a tendency to minimize bad news and focus on good things that may be happening. If things get really bad they have a need to do something so that it looks like they are decisively dealing with the problem at hand. Many times they would be better off letting the economy sort things out on its own.

“Economists have predicted 9 of the last 3 recessions!”

Rule: if you are going to predict, predict often because sooner or later you’ll be right. Economists and other prognosticators are paid to analyze data and offer an opinion on where the economy is headed. However, they state these opinions as if they were facts and many people accept them as such. Quite often they are just as clueless as the people that they are trying to inform. Like the rest of us, they will tend to interpret data to fit what they already believe to be true.

An economist is like the weatherman on TV. He can predict sunny skies only to find two feet of snow on the ground in the morning, yet people will still tune in to see what he predicts for the following day. Their predictions may be wrong nine times out of ten, but they’ll be sure to point to the one time that they were right and say, “I told you so!” All of these predictions need to be taken with a grain of salt, remember that they are just opinions.

“There are lies, damned lies and statistics!”

The same set of statistics can be skewed to fit a number of viewpoints. This means that if you think that the market has hit bottom and started heading back up, you can find facts to support that view. If you think that the market has to fall a lot further, you can find evidence to support that as well. If you think that the market is going stay where it is you will have no trouble finding the data to support that prediction.

What usually happens in any market, stock, bond, commodities, etc., is that the markets turn without very many people realizing it. By the time a change in the trend has been detected and accepted, the major opportunity to buy or sell has been missed. The majority of the investors will sit on the sideline because they are afraid that the time isn’t right yet. Meanwhile the smart-money minority is grabbing the opportunity.

The moral of the story is: don’t try to time the market. Look for investments that make sense and don’t worry about buying at the absolute low. There is an old saying on Wall Street: Bulls win, bears win, hogs get slaughtered. Don’t be a hog.