Don't Let the Pundits Infect Your Portfolio

 | Jan 11, 2013 | 7:58 AM EST
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A preoccupation with the future not only prevents us from seeing the present as it is but often prompts us to rearrange the past. --Eric Hoffer

 In every line of work, people look for a way to distinguish themselves. Most of the time that just means doing a good job. However, if you are a stock-market pundit, the way to stand out is to make big, loud, dramatic market calls -- and then hope you'll be proven correct.

If you're lucky and hit the timing just right, you can live off the attention for a long time. There are still pundits who wallow in the glory of calling the market crash 35 years ago, in 1987. They may not have made another good call since then, but they can always dredge that up to bolster their credentials and garner more attention from the folks in the media.

Because these calls receive so much attention, pundits just can't resist the temptation to keep making them. In fact, most would be lost if they couldn't constantly call tops and bottoms. The see that as their primary mission, and they go about it relentlessly.

The media also does a lousy job of holding market "experts" accountable for their bad calls, so there really isn't much risk to playing this game. You just keep on repeating the dramatic prediction, and if you wait long enough, it will come at least partially true. The poor timing -- and, therefore, the fact that the call is still a money-loser -- is totally ignored. You simply point out that your prediction came true, and the reports will proclaim you are a market savant.

Since dramatic predictions have so little downside for pundits, we tend to be flooded with them. When stocks are in an uptrend, every day we hear that the big fall is right around the corner, and we'd better start selling right now and take cover.

Yet these pundits almost never time it right. In all the years I've been trading, I can't think of a single time when a big market-timing call really made me money. I've avoided major downtrends, not because I heeded some market timer's dramatic advice, but because I paid attention to the way my stocks were acting and sold them.

True, these endless predictions are entertaining, and they can give us some context in which to trade. But they're usually worthless in helping us actually navigate the market in a profitable way, and they tend to make us impatient. Market players work so hard to stay in front of the next turn that they forget about making money in the present. Right now there are many people sitting on the sidelines, and missing out on big gains, because they are so focused on ensuring they won't have any long positions at the exact moment the market finally makes a top. Far too often, we sell stocks not because they did something wrong, but because we are fearful that we aren't timing the overall market correctly.

In short, the place to look for advice is not in these pundits, but in your own portfolio: Ride winners when you have them, escape stocks that are acting poorly and have begun to break down technically. Your stocks are the only real measure of success, and if you listen to them and handle them accordingly, you will do well.

We're seeing very flat action in the early going, and we are in a news vacuum as we await earnings season to kick off in earnest next week. Thankfully there is no major political or macroeconomic news, so we can actually focus on individual names.

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