It's that time of year again, when sensible investors will find themselves rolling their eyes more often than usual. That's because there are more news pieces than usual predicting where the stock market is headed.
For example, in Registered Rep. magazine, fund manager Curtis Teberg stated that he expects a big stock market surge in late 2006 and all of 2007, taking the Dow to 16,000 by the end of the year. (He tied it to the mid-term election cycle.)
Over at foxnews.com, I saw a transcript of a discussion on where the market is headed, with Wall Street Strategies CEO Charles Payne predicting that the Dow will hit 15,000 in 2007, and Morningstar's Pat Dorsey countering that the market seems fairly valued now.
What's wrong with that?
So what's my problem? Well, for starters, I, too, can tell you that I'm pretty darn sure that the Dow will hit 15,000. In fact, I think it will probably hit 250,000 in my lifetime. The thing is, though, that I can't tell you when it will pass the 15,000, or 16,000, or 250,000 mark. And I don't think that anyone else can do so, either. Sure, some predictions end up coming true. But many don't, and you usually don't hear about those.
Philip Tetlock addressed the problem of expert predictors in his book, "Expert Political Judgment: How Good Is It? How Can We Know?" He found that, as New Yorker reviewer Louis Menand put it:
"... that people who make prediction their business -- people who appear as experts on television, get quoted in newspaper articles, advise governments and businesses, and participate in punditry roundtables -- are no better than the rest of us. When they're wrong, they're rarely held accountable, and they rarely admit it, either. They insist that they were just off on timing, or blindsided by an improbable event, or almost right, or wrong for the right reasons."
Here's another problem with predictions about the Dow: The Dow isn't really all that relevant. It only reflects 30 stocks, out of a universe of thousands. (I address this topic more in "The Dow is Useless.") If you're going to make market predictions, at least address the broader market, such as the S&P 500 index, which contains 500 of America's biggest companies, such as Bank of America
So now what?
Ignore market predictions, except perhaps to have some fun with them. Focus instead on more important things, such as your assessment of the health and growth prospects of the countries and the companies you're investing in. Even if the market heads south for a while, some terrific companies can serve you well through a downturn -- such as by paying you hefty dividends while you wait for a recovery.
Here are some of today's hefty dividend payers:
Bank of America is an Income Investor recommendation. Learn which other dividend payers are strongly recommended in our Motley Fool Income Investor newsletter, which you can try for free. It's beating the S&P 500 by 8 percentage points.
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