The Internet is brimming with free investment information, “invaluable” guru predictions, and “in-depth” analysis. So why aren’t people all over the world getting rich quick?
Simple: most of what’s out there is focused either on what has happened or what someone thinks is going to (or should) happen. But the only thing that matters in stock trading is the RIGHT HERE, RIGHT NOW: your next move. In fact, the farther from the present a piece goes (backward or forward), the less value it carries.
What good is a 50-page report when in the end you still don’t know whether to buy, sell, or stay put?
What does it mean that a stock is overvalued? By what yardstick? And does it mean that this is as high as it will go and therefore should be sold, or at least not bought?
Past analysis by itself does not tell you much either. What good is it to know that the best performing foreign market in 2009 was Brazil? What about now? Does it mean that Brazil will continue to outperform in 2010, or should you be looking elsewhere? Where?
History does have some predictive value as patterns of human behavior tend to repeat themselves periodically in similar circumstances, even though the participants change. That’s why we have business cycles. But you never get an instant replay, a second chance. In the previous bull market, oils/materials led for years. Do not expect them to lead again this time around.
Predictions are worthless because they either extrapolate current trends indefinitely into the future or can’t accurately fuse all present and future factors. I do not recall any predictions back in 1997 – 1998 of the coming real estate boom but I am aware of many statements made around 2005 to the effect that real estate is not in a bubble, that real estate values will continue to appreciate, and that, at the worst, prices might have reached a temporary plateau. When oil was approaching $175, there were multiple predictions that it was going to $200 and even $400 because we were running out of it, but I don’t recall any analysis projecting oil at $175 when it was below $20. So the question is: what now? What should we expect? The predictions usually cover the entire gamut, leaving you exactly where you were.
Most recommendations are heavily hedged: “consider this,” “take a look at that.” So, I’ve “considered” and “taken a look at,” now what? Should I buy, sell, or stay put? Is this the best time to buy?
That’s why the only thing that counts is what to do right now – not next year, not last. Now. In fact, the value of any investment advice should be tested by simply asking: so what do I do now? If the answer is there, it may be worth something.