No Predilection for Predictions

 | Dec 28, 2011 | 8:43 AM EST  | Comments
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"From the beginning of time, the sorcerer, the interpreter of dreams, the fortune-teller, the charlatan, the quack, the wild medicine-man, the educated physician, the mesmerist, and the hypnotist have made use of the client's imagination to help them in their work. They have all recognized the potency and availability of that force." -- Mark Twain

After a weak finish we are poised to bounce back a little this morning, but it looks as though we have another painfully slow session on the agenda. There is very little news flow to move things but European stocks are trading better after a successful Italian bond auction and that is all we need to put some green on the screens.

The tradition in the news media during this very slow holiday trading is to trot out predictions about the year ahead. It fills space, makes for interesting reading and the typically optimistic bias plays well in this difficult market environment.

The only problem with these predictions is that they are useless when it actually comes to making money. Forecasting the future makes us feel like we are a bit more in control of things and it makes the writers feel like they are profound and insightful. But as events unfold, our hopes and dreams about how things might play out are quickly forgotten.

It is always a little comical to look back at predictions made in the past. A few folks will get lucky and be right about a few things, but the great bulk of predictions are no more helpful than a coin flip. Most of the time they look downright naïve in the harsh glare of the rearview mirror.

A prediction story in USA Today last year, which featured five "Wall Street heavyweights," had the headline: "Experts agree: Get over your fear and get back into stocks."  The gist of the article was that the S&P 500 would be up as much as 21% while the most pessimistic prediction was for a gain of only 9.1%. A variety of picks were proposed and if the overall results beat the indices, I'd be surprised.

Needless to say, these predictions probably didn't help anyone make any money. It might have sold a few newspapers, but the story probably helped some folks cultivate an incorrect mindset and unrealistic expectations that cost them money.

There is no shame admitting that you don't know what's going to happen in the year ahead. In fact, we should proclaim our ignorance loud and clear. We all have things we'd like to see happen, and it's good to be a positive thinker, but coming up with predictions and theories to justify our hopes and dreams isn't going to make us better traders.

One prediction I will make about 2012 is that the market will do what it always does: give us good trading at times and tough slogging at other times. That is how it always plays out. I have no idea what the timing will be but I know-- without a doubt -- that we will have some periods of time when we will rack up some great gains, and we are going to have some tough times when the market is extremely frustrating.

That is all you need to know about the year ahead. Conditions will change at various times and if we adapt as that happens, we will do just fine. I'm always optimistic about the year ahead because I know there will be opportunities, and if I work at it I'll find a few them.

I will go out on a limb this morning and predict that the action today is going to be very slow, but I'll be happy to change my mind if that changes. That probably isn't the way to become famous as a fortune-teller, but it works for me.  

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