Good morning, happy Monday, and happy Valentine’s Day (it’s Friday … friendly reminder😊)!
“Trying to predict the future is like trying to drive down a country road at night with no lights while looking out the back window.”
– Peter Drucker, author, 1909-2005
Please allow me the opportunity this morning to discuss a topic that often impacts our financial planning decisions: the allure and dangers of trying to predict future market movements.
Wednesday night, January 29th, I know we were all shocked by the images of a helicopter colliding midair with an American Airlines regional jet over Washington DC. Over 60 precious lives were lost in this tragedy. Please continue praying for these families.
One of the things I find somewhat disturbing is how there are people in the media who have made statements, something along the lines of, “I’ve been warning that an airline crash is inevitable because of ____ (fill in the reason).”
Now, these pundits have their reasons for such beliefs, and I am a fierce defender of people’s 1st amendment rights to speak whatever they want. To quote rapper Tom MacDonald, “There’s a difference between hate speech and speech that you hate.” But I feel this is an opportunity to provide some perspective on such statements.
According to the FAA, they handle 16,405,000 flights per year (45,000/day) and over a billion passengers annually (2.9 million a day). Flying in an airplane is an unbelievably safe way to travel (despite my tremendous dislike of turbulence😉).
Now, for some political commentator, retired pilot, or random citizen on social media to spout off a statement like, “It’s only a matter of time until we have a major plane crash.” may sound like a bold prediction, but in reality, it’s pretty much just a matter of odds and time.
For hypothetical purposes only, let’s say there is another plane crash in 10 years. That would mean there would be over 160 million flights between now and then and the statistical likelihood of some type of crash would be reasonably high. It’s just statistics.
But that commentator can say, “I’ve been saying for a long time that this was bound to happen. Go back and look at my podcast, broadcast, social media post from ___ date. I told you this was going to happen.”
This makes that person feel justified and correct … and also allows him/her to build an audience because they can get people to believe they have some kind of special prophetic powers. When in reality, it is just a matter of time until they are correct. Does anyone believe that there will be no plane crashes for the next 50 years?
This can be true about virtually anything.
“I predict that there will be a major hurricane to hit a major Florida city.” At some point, this will probably be true. When it comes true, I convince people to think I’m a genius, when in reality I’m just playing the odds.
“I predict that we will hit a record high temperature this summer.” Well, in Florida the summer is about 8-9 months long, the likelihood of there being at least one day in there where a record high temperature is reached is pretty high. And when it happens, I can gloat, “See I told you so.”
Nowhere is this worse than in the financial world. There are more predictions than there are stars in the sky.
“I predict a major market correction is coming,” says some yahoo on cable news.
“A day of reckoning is coming to the market.”
“The bubble is getting ready to burst.”
Here’s the thing … at some point all these statements will probably come true. They really aren’t bold predictions at all. Since 1940 the S&P 500 has been positive 60 years, negative 23 years, and flat 2 years.
So, purely statistically since 1940 there 70.5% of the time the market is higher, 27.1% of the time it’s lower, and 2.4% of the time it’s flat.
So, if I say, the market is going to drop this year, I have a historically statistical likelihood of 27% of being right.
If I’m wrong one year, I just repeat the statement the next year because I will eventually be right … and when I’m right, watch out, I’m going to tell everyone about how right I am.
See how silly this game is?
But here’s my question: How much did you miss out on in the meantime?
Here’s a quick example and I’ll wrap up (I’m sure you’re relieved😉).
I have a screenshot on my phone from 6:46am on January 10, 2024, roughly 13 months ago, from the homepage of CNBC where the headline reads “Gundlach sees ‘very painful’ recession, S&P 500 forming possible ‘double top.’” The screenshot is attached for your enjoyment 😉
Now, I don’t know or care who Gundlach is, I don’t know what a ‘double top’ is, and I didn’t even click on the article. What I did do was take a screenshot, because even at the time I thought to myself how foolish such a statement is.
The screenshot shows the S&P 500 futures were trading at 4,793 that morning at 6:46am. Friday the S&P 500 closed at 6,025.99.
Now, I don’t know exactly how you define a ‘very painful’ recession, but a roughly 25.7% increase in 13 months doesn’t really meet my definition. Pardon my dripping sarcasm.
Let’s just hypothetically say the S&P 500 drops 10% today (not a prediction, as I hope it is clear I don’t make those), the S&P 500 value would still be double digits higher than when that ridiculous prediction was made.
Here’s the thing … pull up any financial news website right now and you are likely to find similar doomsday type of predictions. One of these days they will be right … the market will almost invariably drop at some point, it’s almost a statistical certainty … but do you really want to miss all the growth between now and then?
My friends, don’t fall for these silly games. Stick to your plan, don’t get caught up in the emotions, and be patient. This was the right advice in 2020 when the market dropped with COVID, when the market dropped with inflation in 2022, and it’s the right advice today.
Here’s a little secret, no matter what happens in 2025, that will be my advice in 2026 as well. 😊
Thank you for allowing me to share these thoughts with you this morning. It is a great honor to serve and support you along your journey. Make it a great week ahead!