We humans love making predictions. Anyone remember these calls?

  1. Bear Stearns is fine!
  2. Y2K will cripple the world's technological infrastructure.
  3. $150-$200 oil for the foreseeable future.

Or here's Bill Kristol opining in December 2006 about our recently concluded presidential election:

If [Hillary Clinton] gets a race against John Edwards and Barack Obama, she's going to be the nominee. Gore is the only threat to her.... Barack Obama is not going to beat Hillary Clinton in a single Democratic primary. I'll predict that right now.

Not one primary, Bill?

Yes, we humans love making outrageous predictions. And we're terrible at it.

Lots of guesses, but not much accountability
It's not that every prediction will prove incorrect. So many people are making predictions on so many things that some people will inevitably turn out to be right. But that doesn't mean you should rely on what they have to say.

A broken clock, after all, will be right twice a day, but that doesn't mean you can tell time from it.

So what the heck does this have to do with investing? Far too much.

Look into my crystal ball
Do any of these sound familiar? "I think the Fed will cut interest rates a quarter point, so I'm going to buy the Swedish Krona ETF." Or, "I think the government will extend Boeing's (NYSE:BA) Transformational Satellite Communications System contract on Tuesday, so I'll buy on Monday."

As John Bogle commented during a recent visit to Fool HQ, far too many people these days confuse investing -- buying shares of great businesses for the long haul -- with speculation -- buying for the short term on the basis of short-term predictions.

The financial media only encourages this type of behavior. Take a look at some of the busier stocks out there, and examine some of their current headlines:



JP Morgan (NYSE:JPM)

"Analyst forecasts JPMorgan will post 4Q loss"

Bank of America (NYSE:BAC)

"Outlook dire for BofA earnings"

Microsoft (NASDAQ:MSFT)

"Internet Predictions for 2009"

Home Depot (NYSE:HD)

"Cramer: Rounding Out My Dow 30 Predictions"

Under Armour (NYSE:UA)

"The Future of the Sports Fantasy Market"

No wonder individual investors make so many predictions! We've been conditioned to do so by Wall Street analysts and the financial news media.

It's not all speculation
Investing is hardly a sure thing. But there's a big difference between buying shares because of some uncertain and nebulous external event, and buying shares because you believe that the underlying business is sound.

For instance, if I want to buy a video game company like Activision Blizzard (NASDAQ:ATVI), I'll look at what I can know about it. I know that the company's online subscription model supports enormous (and growing) operating margins. I know its balance sheet is debt-free. I know its management is solid. I know that its stock trades for a reasonable price. All of that leads me to an educated guess about the long-term direction of this stock.

I wouldn't buy Activision because I think Activision's recent holiday sales are going to outstrip analyst estimates for the fourth quarter. I really have no idea. And neither do the analysts. They're just playing a short-term guessing game.

But I do know (and so do great investors such as Warren Buffett and Peter Lynch) that if you invest in companies that are well-priced, have solid businesses, are well-capitalized, and are run by great managers, you can seriously increase your chances of long-term success. And that's all you really can hope for in a situation like investing, where there are absolutely no guarantees.

The Foolish bottom line
As Mark Twain once remarked, "There are two times in a man's life when he should not speculate -- when he can't afford it and when he can."

So, here's my big prediction for 2009: Stocks might go up, but they might also go down. I don't know, I don't care, and I know that no one else knows, either. In fact, were I you, I'd be really suspicious of people who try to convince you that they do, in fact, know what the market will do over the short term.  

Me? I know that the stock market will eventually reward those who are prescient enough to identify good companies, buy them at reasonable prices, and stick with them over the long haul.

So please -- promise me that in 2009, you won't trade based on hunches about events you can't predict, and which may or may not matter anyway. Instead, look for companies that share some of the same long-term, profit-making characteristics that Buffett and Lynch love.

If you'd like a few ideas to get started, take a look at Motley Fool Stock Advisor's top recommendations. You can try the service free for 30 days, and there's no obligation to subscribe. Simply click here to get started.

Fool Nick Kapur predicted that the Steelers would beat the Eagles in the Super Bowl, but he owns no shares of any company mentioned above. Activision Blizzard is a Motley Fool Stock Advisor recommendation. Home Depot and Microsoft are Inside Value selections. JPMorgan is an Income Investor pick. Under Armour is a Motley Fool Hidden Gems and a Rule Breakers selection, as well as a Fool holding. The Motley Fool's disclosure policy leaves the prognostication to its trusty Magic 8-Ball.