It’s that time of year when investors are starting to get bombarded by all sorts of predictions about what “the market” is going to do next year. On the one hand, several prognosticators are convinced that sustained inflationary pressures, a hawkish Fed, and a (very) inverted yield curve (among a litany of other Amegeddon level headwinds) means that the bear market is far from over. On the other hand, several analysts have noted that the S&P 500 has a perfect track record for gains following a negative midterm election year.

It makes for good content in what is typically a slow time for the news cycle, which is fine. The problem is that there’s a tendency for some investors to think that any of those predictions are actionable. Unfortunately, the reality is that it’s notoriously difficult to predict what the market is going to do over any given time period. Literally no one has ever been able to do it on a consistent basis (how’s that for a perfect track record!).

Because there is always an endless number of predictions, there is always someone that gets it right. There will be some good logic behind the predictions, but it is largely luck. All of the folks that were celebrated for making huge predictive calls in the past have never been able to do it again. None of the people that were celebrated for calling the crash in 1987 ever made another great prediction. 

There are many market players that have navigated the market extremely well, but it’s not because they could foresee the future. Rather, their success is simply due to the fact that they’ve been able to effectively react as conditions and pricing action change.

The action as the COVID-19 pandemic hit is a perfect example. No one could have predicted it, but the market players that navigated that crisis definitely didn’t “see it coming”. Rather, the folks that handled it best were those that reacted the fastest to changing conditions by shifting quickly to defense as stocks began to break down and then moving back to an aggressive, risk-on posture as the Fed and Congress began pumping money into the system.

Still, many investors think that finding real success means figuring out what’s going to happen next. They are wrong. The job of the active investor is to navigate what’s happening right now. When you take care of the present, the future will take care of itself. But feeling the need to pay attention to (and act on) predictions can be all that’s needed for an investor to ignore the pricing action and succumb to inertia. Dealing with what’s happening right in front of your face will save you a lot of time and money.

So, as we enter predictions season, remember that the cardinal sin of the market is thinking that you know better than what the pricing action is telling you. Stop pretending to have some sort of understanding about what’s going to happen and react to what’s happening now. Stick with your process. Stay disciplined and follow your rules. Eschew predictions. Do those things and the money will follow.