Market Analyst vs. Weatherman

 

I can still remember as a young boy watching the local weather report on one of the three channels of our black and white television.  Often the gimmick was for the weatherman to come out dressed in the garb of the day that coincided with the forecast.  My favorite of course was the ill-fitting raincoat and rain hat.  The old joke about predicting the weather and “hang around, if you do not like it – it’ll change in an hour or so” was universal.  The equipment they used then was archaic by today’s Doppler radar, real time, computerized standards, and it is a wonder that they ever forecast correctly.  Yet, amazingly they kept their jobs even though so frequently wrong in their forecasts.

 

This brings us to the financial market analyst.  We have just been through the annual exercise when all the publications and talk shows get the annual “predictions” on what the market will do this year.  This process also begs the question - Is there anyone that can be so wrong so often and still hold onto a job?  And not just any job – a well respected, high paying job to boot!  Today’s weatherman looks downright clairvoyant compared to the stock market analyst.  Yet investors seem to overlook poor forecasting as if it never happened.  What short memories Americans have!  They seem to always be hoping to find that special guru or hot stock tip that will allow their ship to finally come in.  This harkens to a fundamental problem - investors typically are looking for the short-term fix rather than at the long-term view of their finances.  If they were thinking long term, they would ignore the forecasts and buy and hold properly diversified stock portfolios for the rest of their lives – period.  Why?  Because there is no better way to create long-term wealth for the average investor.  Getting in and out based on market events, or the guru’s call of the day, week, month, or year is a failed proposition from top to bottom.  Free markets work.  Capitalism is the economic miracle of history.  America always comes through.  So get in and stay in.  Oh, I still watch the prognosticator’s predictions.  The difference is I do it for recreation and amusement, not for making important decisions about my money that may ultimately affect the quality of my life for the rest of my life.

 

I was recently invited to attend a luncheon where the guest speaker was the Senior Vice President and Chief Economist for the Federal Reserve Bank of Dallas.  Before he began his speech he indicated that there would be a Q&A when he finished.  He stated, “Before you ask the question, let me just say that the American economy is sound.  I am accused often of being an optimist.  In fact, I am simply a realist.  There has never been a recession that we have not come out of and I do not expect it to be any different this time.”  To complete our comparison, there has never been a rainstorm that lasts forever.  As long-term investors, that is what we need to know.  So as for me when it comes to predicting – give me the weatherman.  His short-term forecasts are far more accurate.  And his long-term predictions?  Well, he tells me there is always some fair weather ahead.

 

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