Best of the Fool 2000
Big Strike Out

By Jeff Fischer (TMF Jeff)
March 13, 2000

The following article originally ran as a Fool Portfolio (now Rule Breaker) article on April 14, 1998.

Science shares that very large events -- earthquakes, volcanoes, and hurricanes -- are easier to predict than smaller earthquakes, volcanoes, and hurricanes. A scientist can measure the activity beneath the Earth's surface to predict when Mt. Saint Helens is likely to erupt with more accuracy than he or she can measure the slumbering activity beneath a dormant volcano in the Virgin Islands.

The U.S. stock market is the most heavily researched, written about, and analyzed market in the world -- by literally thousands of investment professionals. And far too many of these Wise people who follow the market closely, day-in and day-out, have made very good careers by portraying an ability to predict the market, thereby advising investors on where stocks are next headed. Sometimes -- very rarely, but sometimes -- they're right.

Yet the intelligence of these thousands of people all focused entirely on the stock market has resulted in exactly zero accurate predictions on where this market has been headed since 1994. You would think, if anything, that this explosive stock market -- akin in power to the earthquake that leveled all of Lisbon, Portugal in 1755 -- would have been at least somewhat predictable, especially given all of today's "modern" market-watching tools and the number of high-paid investment experts in the industry.

But it wasn't predictable. Nobody predicted it. An advance this large, this monumental -- and nobody foresaw it. And yet people still make the mistake of listening to advisors when they claim to foresee even very small, short-term market movements. Ponder that for a moment. A Fool should ask:

"If all the professionals couldn't foresee this giant 140% advance during four year's time, how can they possibly claim to foresee, for example, a small 10% decline in stocks happening over the next two months? The very notion is ludicrous!"

Yet in magazines, newspapers, on the Internet, and on television, too many financial advisors are still pretending to know where the market is likely to go next, even in the short term. They hint at their feigned knowledge by wearing fancy suits and expensive watches and then having the phone number to their office flash on the screen:

"Call us. We'll help you to invest in this tough market. We know."

But if you feel that you need a professional to help you invest your money because this large market advance has you concerned, remember that no professionals predicted this advance -- the largest three-year advance and, therefore, arguably one of the most predictable in history. And it's just as likely that nobody is going to predict the market accurately going forward. A Fool is left with his or her own Foolishness and long-term outlook to carry them forward. There is no great Sage.

But what about market declines?

Sure, it's easy to now say that we're due for a decline. But when? And to what advantage is acting on any prediction?

When Portugal's largest earthquake struck Lisbon in 1755, it was a Sunday and most of the city's people were in church. The earth was moving wildly, shaking the buildings, so everyone ran out of the cathedrals and into the town's large square along the Atlantic Ocean -- for safety. There, in the safety of the square, a giant tidal wave greeted them, carrying away at least 40,000 people.

Not nearly as horrific, but ironic just the same, is that many people took money out of "inflated" U.S. stocks in 1996 and invested in the booming Asian economy. And some people sold out of equities entirely and shorted stocks after 1995's advance. Reacting to what you think is going to happen, or moving to protect yourself (from what, we might ask) can often be more dangerous than simply staying the course.

Invest in what you know and invest with the long-term trend. Once you begin to need your money to live -- after retiring, perhaps -- you should reconfigure your investments; but for the majority of the country, what stocks do over the next five years should be relatively meaningless.

If nobody could predict such a wonderful (in hindsight, even obvious?) bull market, how can anyone predict any nuances of the market going forward?

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