Lessons from 2016 Election: Invest, Don’t Predict

Lessons from 2016 Election: Invest, Don’t Predict by Jeff Holland

{2 minutes to read} People often base their investments on their emotions and their predictions. What I want people to realize is that when you’re investing properly, you’re not really making any predictions. You’re using data and empirical research that incorporates information from market participants globally.

Predictions can seem very entertaining. They might even be fun, with a small stake of the money. But you only remember your correct predictions. Predictions can cause you to go off the rails and not achieve your financial goals. You should not base your portfolio on predictions. You want to succeed with your financial goals. And if you think you’re smart because you make an accurate prediction, remember you can also be wrong. As John Kenneth Galbraith said, “The only function of economic forecasting is to make astrology look respectable.”

Who could have predicted that Donald Trump was going to win or that Hillary Clinton was going to lose? The odds were about 75/25, with Hillary as the favorite. People also said that if Trump won, the market would completely crash. It didn’t.

The election was super-polarizing. And many people were angry or dissatisfied with the unexpected result. But if that result had been predicted, and you had taken your money out of the market before the election, you’d still be worse off. As soon as the information came out that Trump was the president-elect, the market immediately discounted it. Within hours, it had become old news that you shouldn’t base any trades on. According to Peter Lynch, “Far more money has been lost by investors preparing for corrections or trying to anticipate corrections than has been lost in corrections themselves.”

So, don’t be afraid. Markets work. You’ve set up a good plan, and you should stick with it. You can’t outguess tomorrow’s news, and it’s that unknown future news that moves stock prices.

Jeff Holland
jeff.holland@viaiv.com

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