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The Safe Way to Be Right is to Stay Out of The Guessing Game

investment-decisions

Recently, the Chief Investment Officer for Guggenheim came out of the blue on CNBC and called for a 20% drop in the market by the end of the month.

CNBC. Insert facepalm. Do you ever pay attention to the advertising they allow on that network? It should tell you everything you need to know about their real programming motivation.

But that prediction…I mean, really?

REALLY?

Everyone knows I like to look at probabilities rather than possibilities, so yeah, is it possible we see a 20% plunge by the end of the month?

Sure.

Probable? Well, there are less than 15 trading days left until October 1st…never mind the market was up four days in a row after he made his prediction.

Every time I see something like this, it reminds me that there is little downside to being wrong and lots of glory to being right. I’ll never forget Jim Cramer in early March of 2008, emphatically claiming that there was nothing wrong with Bear Stearns when it was trading around $60/share, and then like five days later, Bear Stearns was bought by JP Morgan for $2/share.

Here’s the clip–

 

The point I want to share is this – the market will turn around and start to rally back well before anyone realizes it’s rebounding.

Rallies start surrounded by a ton of pessimism. You’ve heard it a million times – Dead Cat Bounce, Bear Market Rally, etc. That’s because there is very little risk associated with saying those things publicly. If you are right, you look smart, and if you are wrong, you get to say something like, “I’ll take being wrong like that any day of the week!”

My opinion? We are closer to the 9th inning than the 1st inning and the only way to participate in every tick of a rally is to be in the rally.

Guessing is guessing, and jumping in and out of the market is the WORST FORM of guessing.

I don’t want this to be insulting…but you are not smart enough to jump in and out. You are only lucky or unlucky at jumping in and out.

Read that again.

And by “you,” I mean everyone and anyone.

Don’t ever make short-term investment decisions based on one opinion you hear on TV. Their interests are not aligned with yours, and they are not special just because they are on TV guessing.

Do yourself a favor and stay out of the guessing game.

Keep looking forward.

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David B. Armstrong, CFA

President & Co-Founder

Dave got into the industry when he discovered his passion for finance in his mid-20’s. He’s a combat veteran and served as an officer in the United States Marines Corps on both active duty and in the reserves, retiring at the rank of Lieutenant Colonel. While serving on active duty, Dave was unable to spend money on deployments, so he became a self-taught investor. Along with a few bucks cash as a bouncer, his investing performance grew to be good....

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