“For years the financial services have been making stock market forecasts without anyone taking this activity very seriously. Like everyone else in the field they are sometimes right and sometimes wrong. Wherever possible they hedge their opinions so as to avoid the risk of being proved completely wrong. There is a well-developed art of Delphic phrasing that adjusts itself successfully to whatever the future brings. In our view – perhaps a prejudiced one -this segment of their work has no real significance except for the light it throws on human nature in the securities market. Nearly everyone interested in common stocks wants to be told by someone else what he thinks the market is going to do. The demand being there, it must be supplied.” – The Intelligent Investor
When J P Morgan was asked in the early 1900’s on his view on what the market will do, he famously said, “It will fluctuate.” But a lot of people seriously believe that they can actually predict where the market will be, or where a particular stock or sector will be in the next few days, weeks or months. A lot of other people believe that there exist such people, and hence believe such people.
“Will the market be at 20000 or below 14000 by end of the year?”
“Will Stock A reach its price target of 123 in the next 6 months?”
“Will Sector XYZ beat Sector DEF in the next 2 quarters?”
A lot of people give confident answers to these questions. It is likely that they are in the business of being confident rather than being correct. Trying to predict prices, levels or direction of the market is a bit like trying to predict the team score or that of a batsman in a cricket match.
“Will India score 300 in the first innings?”
Or like another national obsession “Will Sachin get his 100th 100 in this series?”
Well – answers to both these sets of questions should be like the famous ad ‘No idea.’
Market levels are like the scoreboard. There is no fool-proof way by which one can predict the scoreboard and claim to do it accurately every time.
One can use all the past data in the world and analyse the pitch and the conditions as much as possible, but whether the batsman scores or loses his wicket only depends on how he plays the next ball. And there will never be any certainty about what will happen on the next ball. So, all you can do in cricket is to focus on the next ball.
Similarly, in the markets, all one can do is to evaluate every price that Mr Market throws at you and play it on its merit. On where it will go next, the answer is simple, ‘No idea.’ Like John Bogle once famously said, “Nobody knows Nothing.”